ABAN OFFSHORE LTD., CHENNAI V. DCIT CORPORATE CIRCLE 1(1), CHENNAI

ITTPA 86/CHNY/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6641 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 12-04-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 27-01-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 16-12-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D. SRINIVASA RAO
• Assessee Lawyers: PLACING RELEVANT MATERIALS
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; Search and seizure; Double taxation relief; International transaction; Rule of consistency; Earning of tax free income; Deemed to accrue or arise in india; Retrospective amendment; Question of law; Cost of acquisition; Wholly owned subsidiary; Valuation report; Commercial expediency; Revenue expenditure; Capital expenditure; TDS; Rule 8D; Set aside; FORM 26AS
• Section: 32; 37; 90; 92B; 14A; 115JB; 40(a)(ia); 37(1); 201; 43; 48; 13; 22; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI , !' ! . $% , & %' BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ' ./ I.T.(TP)A NO.86/CHNY/2019 ASSESSMENT YEAR: 2015 - 2016 M/S. ABAN OFFSHORE LIMITED, C/O M/S. P. MURALI & CO., CHARTERED ACCOUNTANTS, NO.6-3-655/2/3, SOMAJIGUDA, HYDERABAD 500 082. [PAN: AAACA 3012H] VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1 (1), AAYAKAR BHAVAN, M.G. ROAD NUNGAMBAKKAM, CHENNAI 600 034. ( /APPELLANT) ( ()*+ /RESPONDENT) *+ , - / APPELLANT BY : SHRI. P. MURALI MOHAN RAO, CA ()*+ , - /RESPONDENT BY : SHRI. D. SRINIVASA RAO, CIT , .& /DATE OF HEARING : 03.02.2021 /01 , .& / DATE OF PRONOUNCEMENT : 12.04.2021 2 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE AS SESSMENT ORDER DATED 23 RD NOVEMBER, 2019 PASSED U/S.143(3) R.W.S.144C(13) OF THE INCOME TAX ACT, 1961 IN F.NO.AAACA3012H/DCIT/C.C-1(1)/2019 -20; DATED 23 RD NOVEMBER, 2019 RELEVANT TO THE ASSESSMENT YEAR 2015 2016 CONSEQUENT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL [DRP ], BANGALORE DATED 25.01.2019 U/S.143(3) R.W.S.144C(1) R.W.S.92CA OF T HE INCOME TAX ACT, 1961. I.T.(TP)A NO.86/CHNY/2019 :- 2 -: 2. THE FACTS THAT ARE IN BRIEF IS THAT THE ASSESSEE IS M/S. ABAN OFFSHORE LIMITED IS A PUBLIC LIMITED COMPANY INCORPORATED UN DER THE COMPANIES ACT, 1956 ENGAGED IN THE BUSINESS OF PROVIDING OFFSHORE DRILLING AND PRODUCTION SERVICES TO COMPANIES ENGAGED IN EXPLORATION, DEVEL OPMENT AND PRODUCTION OF OIL AND GAS BOTH IN DOMESTIC AND INTERNATIONAL MARK ETS. THE COMPANY IS ALSO ENGAGED IN THE OWNERSHIP AND OPERATION OF WIND TURB INES FOR GENERATION OF WIND POWER IN INDIA. 3. THE ASSESSEE HAD FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2015-16 ELECTRONICALLY ON 27.11.2015 ADMITTING A TO TAL INCOME OF RS.126,66,09,760/-. THE RETURN FILED BY THE ASSESS EE WAS PROCESSED U/S.143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UN DER COMPUTER AIDED SCRUTINY SELECTION (CASS) AND NOTICE U/S.143(2) OF THE ACT DATED 22.09.2016 WAS SERVED ON THE ASSESSEE. DURING THE PREVIOUS YE AR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE H AD ENTERED INTO AN INTERNATIONAL TRANSACTION WITH ASSOCIATED ENTERPRIS ES TO THE TUNE OF RS.1018,47,03,207/- AND SPECIFIED DOMESTIC TRANSACT IONS TO THE TUNE OF RS.19,32,98,095/-. THE CASE HAS BEEN REFERRED TO T HE TRANSFER PRICING OFFICER [TPO] AND THEREAFTER A NOTICE U/S.142(1) OF THE ACT WAS ISSUED AND AFTER FOLLOWING THE DUE PROCEDURES, THE DRAFT ASSESSMENT ORDER DATED 31.12.2018 WAS COMPLETED AND COMMUNICATED TO THE ASSESSEE. TH E ASSESSEE HAS RAISED OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL [DRP] AND THE DRP HAS I.T.(TP)A NO.86/CHNY/2019 :- 3 -: CONSIDERED THE OBJECTION RAISED BY THE ASSESSEE AND CONFIRMED THE DRAFT ASSESSMENT ORDER AND DIRECTED THE ASSESSING OFFICER TO COMPLETE THE ASSESSMENT DATED 23.11.2019. AS AGAINST THE ASSESS MENT ORDER, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 4. THE FIRST GROUND OF APPEAL IS GENERAL IN NATURE HENCE, NO ADJUDICATION IS REQUIRED AND THE SAME IS DISMISSED. 5. THE SECOND GROUND OF APPEAL RELATES TO CORPORATE GU ARANTEE FEE : FACTS ARE IN BRIEF THAT IN THE ASSESSMENT ORDER, T HE ASSESSING OFFICER HAS NOTED THAT AS PER THE ANNUAL REPORT, THE ASSESS EE COMPANY HAS GRANTED CORPORATE GUARANTEE TO THE AE TO AN AMOUNT OF OUTST ANDING AS ON 31.03.2015 IS RS.152,57,52,930/-. IN THE TRANSFER PRICING STU DY REPORT, THE ASSESSEE COMPANY CLAIMS THAT DURING THE COURSE OF TRANSFER P RICING PROCEEDINGS, THE COMPANY SUBMITTED THAT THE CORPORATE GUARANTEE ISSU E IS MERELY A COMMITMENT AND AS SUCH DOES NOT HAVE ANY BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS. CONSEQUENTLY, SUCH A COMMITMENT IS NOT COVERED WITHIN THE SCOPE AND SPECTRUM OF INTERNATIONAL TRANSACTION U /S.92B OF THE INCOME TAX ACT, 1961. HOWEVER, THE ASSESSING OFFICER HAS NOT AGREED WITH THE EXPLANATION OF THE ASSESSEE HAS NOTED THAT CORPORAT E GUARANTEE IS AN INTERNATIONAL TRANSACTION AND FOR THE ASSESSMENT YEAR 2013 2014 , ALP OF CORPORATE GUARANTEE HAS BEEN DETERMINED AT THE RATE OF 1% WHICH HAS BEEN CONFIRMED BY THE HONBLE DISPUTE RESOLUTION PANEL [ DRP]. ACCORDINGLY, CORPORATE GUARANTEE DURING THE CURRENT YEAR IS CONT INUING FROM THE EARLIER I.T.(TP)A NO.86/CHNY/2019 :- 4 -: YEARS AND THE RATE OF CHARGING CORPORATE GUARANTEE IS TAKEN AS 1%. ACCORDINGLY, THE CORPORATE GUARANTEE FEE ON 152,57, 52,930/- WORKS OUT TO RS.1,52,57,529/-. ACCORDINGLY, UPWARD ADJUSTMENT O F RS.1,52,57,529/- IS RECOMMENDED IN THE CASE OF THE ASSESSEE FOR THE ASS ESSMENT YEAR 2015 2016. 6. ON APPEAL BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY CO ST WHILE EXTENDING THE CORPORATE GUARANTEE TO THE AES AND HENCE NO ADJUSTM ENT TO ALP IS REQUIRED TO BE MADE. HE HAS ALSO SUBMITTED THAT PROVISION O F CORPORATE GUARANTEE DOES NOT INVOLVE ANY COST TO THE ASSESSEE AND THERE FORE DOES NOT HAVE AN INTERNATIONAL TRANSACTION. HE HAS ALSO SUBMITTED T HAT PROVIDING A CORPORATE GUARANTEE TO AN AE IS TO DISCHARGE HIS OWN OBLIGATI ON. HE ALTERNATIVELY SUBMITTED THAT IF THE CORPORATE GUARANTEE IS AN INT ERNATIONAL TRANSACTION, THE RATE CHARGED BY THE ASSESSING OFFICER AT 1% IS HIGH ER AND SUBMITTED THAT 0.25% MAY BE CHARGED. FURTHER, HE RELIED UPON THE DECISION IN THE CASE OF ASIAN PAINTS LIMITED VS. ADDITIONAL COMMISSIONER OF INCOME-TAX, LARGE TAX PAYER UNIT (LTU) REPORTED IN [2014] 41 TAXMANN.COM 71 (MUMBAI TRIB.). HE ALSO RELIED UPON THE DECISION OF THE HYDERABAD BENC H OF THE TRIBUNAL IN THE CASE OF THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRC LE 16(1), HYDERABAD VS. LANCO INFRATECH LIMITED REPORTED IN [2017] 81 T AXMANN.COM 381 (HYDERABAD TRIB.) I.T.(TP)A NO.86/CHNY/2019 :- 5 -: 7. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE HAS SUBMITTED THAT THE CORPORATE GUARANTEE GIVEN BY THE ASSESSEE TO AN AE IS AN INTERNATIONAL TRANSACTION AND THE RATE CHARGED BY T HE ASSESSING OFFICER AT 1% IS REASONABLE AND STRONGLY SUPPORTED THE ORDER PASS ED BY THE ASSESSING OFFICER. 8. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE ARGUMENTS AND HAD GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. 9. IN SO FAR AS THE ISSUE THAT WHETHER CORPORATE GU ARANTEE ISSUED BY THE ASSESSEE TO ITS AES COMES WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION OR NOT? THE FINANCE ACT, 2012 HAS INSERTED, AN EXPLANA TION TO SECTION 92B WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2002 TO INCLUDE THE TERM GUARANTEE WITHIN T HE DEFINITION OF INTERNATIONAL TRANSACTION. THEREFORE, THE CORPORATE GUARANTEE ISSUED BY AN ENTITY ON BEHALF OF ITS AES IS AN INTE RNATIONAL TRANSACTION AS CONSIDERED BY THE BOMBAY HIGH COURT IN THE CASE OF THE COMMISSIONER OF INCOME TAX VS. EVEREST KENTOR CYLINDER LIMITED REPO RTED IN [2015] 58 TAXMANN.COM 254 (BOM.). THE HONBLE HIGH COURT HAS CONSIDERED THE ISSUE IN THE LIGHT OF PROVISION OF SECTION 92B AND EXPLAN ATION, TO COME TO THE CONCLUSION THAT GUARANTEE ISSUED BY AN ENTITY ON BE HALF OF ITS AES, A SUBSIDIARY IS INTERNATIONAL TRANSACTION. HOWEVER, WHILE BENCHMARKING THE RATE OF COMMISSION, NO COMPARISON CAN BE MADE BETWE EN GUARANTEE ISSUED BY THE COMMERCIAL BANK AS AGAINST CORPORATE GUARANTEE ISSUED BY HOLDING COMPANY FOR BENEFIT FOR ITS AE SUBSIDIARY COMPANY F OR COMPUTING ALP OF I.T.(TP)A NO.86/CHNY/2019 :- 6 -: GUARANTEE COMMISSION. THE RELEVANT OBSERVATION OF THE HONBLE BOMBAY HIGH COURT (SUPRA) IS REPRODUCED AS UNDER: THE ADJUSTMENT MADE BY THE TPO WAS BASED ON INSTANCES RESTRICTED TO THE COMMERCIAL BANKS PROVIDING GUARANTEES AND DID NOT CONTEM PLATE THE ISSUE OF CORPORATE GUARANTEE. NO DOUBT, THESE ARE CONTRACTS O F GUARANTEE, HOWEVER, WHEN THEY ARE COMMERCIAL BANKS THAT ISSUE BANK GUARAN TEES WHICH ARE TREATED AS THE BLOOD OF COMMERCE BEING EASILY ENCASHABLE IN THE EVENT OF DEFAULT AND IF THE BANK GUARANTEE HAD TO BE OBTAINE D FROM COMMERCIAL BANKS, THE HIGHER COMMISSION COULD HAVE BEEN JUSTIFIED. IN THE PRESENT CASE, IT IS ASSESSEE-COMPANY THAT IS ISSUING CORPORATE GU ARANTEE TO THE EFFECT THAT IF THE SUBSIDIARY AE DOES NOT REPAY LOAN AVAILED OF IT FROM ICICI, THEN IN SUCH EVENT, THE ASSESSEE WOULD MAKE GOOD THE AM OUNT AND REPAY THE LOAN. THE CONSIDERATIONS WHICH APPLY FOR ISSUANCE OF A CORPORATE GUARANTEE ARE DISTINCT AND SEPARATE FROM THAT OF BANK GUARANTEE ARE DISTINCT AND SEPARATE FROM THAT OF BANK GUARANTEE AND ACCORDIN GLY COMMISSION CHARGED CANNOT BE CALLED IN QUESTION, IN THE MANNER TPO HAS DONE. THE COMPARISON IS NOT AS BETWEEN LIKE TRANSACTIONS BUT THE COM PARISONS ARE BETWEEN GUARANTEES ISSUED BY THE COMMERCIAL BANKS AS AG AINST A CORPORATE GUARANTEE ISSUED BY HOLDING COMPANY FOR THE BENEFIT O F ITS AE, A SUBSIDIARY COMPANY. IN VIEW OF THE ABOVE DISCUSSION, APPEAL DOES NO T RAISE ANY SUBSTANTIAL QUESTION OF LAW AND IT IS DISMISSED. 10. FROM THE ABOVE DECISION OF THE HONBLE MUMBAI H IGH COURT, IT IS CLEAR THAT CORPORATE GUARANTEE BY AN ENTITY ON BEHALF OF ITS AES A SUBSIDIARY COMPANY IS A INTERNATIONAL TRANSACTION. HOWEVER, W HILE ARRIVING AT A RATE, THE ASSESSING OFFICER HAS TAKEN COMPARABLES FROM COMMER CIAL BANKS TO AT ARRIVE AT MEAN MARGIN OF 1.04% AND ADOPTED SUCH RATE TO DE TERMINE THE ALP OF CORPORATE GUARANTEE ISSUED BY THE ASSESSEE. THE HO NBLE MUMBAI HIGH COURT HAS CONFIRMED THE ORDER OF THE TRIBUNAL WHEREIN THE TRIBUNAL ESTIMATED THE GUARANTEE COMMISSION AT THE RATE OF 0.50%. WE THER EFORE BY CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT WE WILL FIX THE GUARANTEE COMMISSION AT THE RATE OF 0.50%. 11. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY T HE ASSESSING OFFICER AND DIRECT THE ASSESSING OFFICER TO ADOPT AT THE RATE O F 0.50% COMMISSION ON GUARANTEE ISSUED BY THE ASSESSEE ON BEHALF OF ITS A ES, A SUBSIDIARY COMPANY. I.T.(TP)A NO.86/CHNY/2019 :- 7 -: THUS THE GROUND OF APPEAL FILED BY THE ASSESSEE FO R THE ASSESSMENT YEAR 2015 2016 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 12. THE THIRD GROUND OF APPEAL RELATING TO DISALLOWANCE OF INTEREST EXPENDITURE : FACTS ARE IN BRIEF THAT IN THE ASSESSMENT ORDER, TH E ASSESSING OFFICER HAS NOTED THAT THE ANALYSIS OF THE BALANCE-SHEET HA S REVEALED THE ASSESSEE HAS NON-INTEREST BEARING FUNDS I.E., CAPITAL AND RE SERVES AMOUNTING TO RS.3,149 CRORES AND LOAN FUNDS, I.E. INTEREST BEARI NG FUNDS OF RS.5,514/- CRORES. FROM THE ABOVE, IT IS EVIDENT THAT THE ASS ESSEES INTEREST BEARING FUNDS IS MORE THAN THE NON-INTEREST BEARING FUNDS. THE FIXED ASSETS OF THE ASSESSEE COMPRISES OF RIGS AND DRILL SHIPS WHICH HA VE BEEN BOUGHT MUCH EARLIER FOR WHICH THE ASSESSEE WOULD HAVE UTILIZED THE NON-INTEREST BEARING FUNDS. THE INVESTMENTS MADE IN THE SUBSIDIARY COMP ANY, M/S. ABAN HOLDINGS PRIVATE LIMITED WAS RS.2,604.67 CRORES. AS A RESUL T, OUT OF THE TOTAL INTEREST BEARING FUNDS, THE ASSESSEE COULD HAVE USED DIRECTL Y OR INDIRECTLY FOR THE INVESTMENT TO BE MADE IN THE FOREIGN SUBSIDIARY. A S THE ASSESSEE HAS NOT CLARIFIED WITH EVIDENCE WHICH PART OF THE LOAN WAS USED FOR THE BUSINESS AND FOR INVESTMENTS EVEN THOUGH IT IS SPECIFICALLY SOUGHT, THE ENTIRE INTEREST EXPENDITURE OF RS.92,04,63,163/- WAS PRESUMED TO BE MADE TOWARDS INVESTMENT IN THE FOREIGN SUBSIDIARY. DURING THE P REVIOUS YEARS, M/S. ABAN HOLDINGS PRIVATE LIMITED ALLOTTED SHARES AGAINST TH E OUTSTANDING LOAN TO THE ASSESSEE. AS THE INVESTMENTS IN SINGAPORE MADE ARE IN THE NATURE OF CAPITAL, I.T.(TP)A NO.86/CHNY/2019 :- 8 -: THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAI D EXPENSES SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THEIR REPLY AND IN A NUTSHELL ARGUED THAT THE INVESTMENTS ARE MADE TOWARDS THE COMMERCIAL EXP EDIENCY AND BUSINESS PROSPECTS OF THE ASSESSEE AND THE DIVIDEND EARNED W ILL BE TAXABLE IN INDIA. AS SUCH, THE ASSESSEE REQUESTED TO ALLOW THE ENTIRE EX PENSES. HOWEVER, THE ASSESSING OFFICER HAS CONSIDERED THE EXPLANATION AN D NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND OBSERVED THAT THE I NVESTMENTS MADE IN SINGAPORE AID THE ASSESSEES SUBSIDIARY BUSINESS IN TEREST RATHER THAN THE BUSINESS INTEREST OF THE ASSESSEE, THEREBY NO COMME RCIAL EXPEDIENCY FOR THE ASSESSEE IN THE BUSINESS CARRIED IN INDIA AGAINST W HICH THE INTEREST EXPENSES ARE CLAIMED. FURTHER, NO DIVIDEND INCOME RECEIVED BY THE ASSESSEE IN THE FINANCIAL YEAR AND THE DIVIDEND INCOME FROM THE FOR EIGN INVESTMENTS ARE TAXABLE ONLY ON THE RECEIPT BASIS. SO THE ASSESSEE CANNOT CLAIM THE INTEREST EXPENSES TO THE TUNE OF RS.159.39 CRORES AS THERE I S NO DIVIDEND INCOME EARNED DURING THE YEAR. THE INTEREST EXPENSES TOWA RDS INVESTMENT IN SHARES ARE TO BE CAPITALIZED, IF THE ASSESSEE IS NOT DOING SHARE TRADING BUSINESS. THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS TRISHUL INVESTMENTS LIMITED [2008] 305 ITR 434 (MAD) HAS OBSERVED THAT THE INTEREST PAID FOR ACQUISITION OF SHARES WOULD PARTAKE CHARACTER OF CO ST OF SHARE AND THEREFORE THE SAME WAS RIGHTLY CAPITALIZED ALONG WITH THE COS T OF ACQUISITION OF SHARES. 13. THE ASSESSING OFFICER FURTHER NOTED THAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010 2011, THE HONBLE DRP HA S UPHELD THE I.T.(TP)A NO.86/CHNY/2019 :- 9 -: ASSESSING OFFICERS DECISION ON THE SAME ISSUE, SIN CE THE FACTS OF THE CASE REMAIN THE SAME, THE PANEL AGREES WITH THE FINDINGS FOR THE ASSESSMENT YEAR 2010 2011 AND REAFFIRMS THE REASONS GIVEN BY PANE L. CONSIDERING THE ABOVE, THE OBJECTION OF THE ASSESSEE IS NOT ACCEPTA BLE. THE ASSESSING OFFICER HAS FURTHER NOTED THAT EVEN WITH THE DECISION OF TH E HONBLE DRP, THIS CASE HAS BEEN REVERSED BY THE HONBLE ITAT, THE ADDITION UND ER THIS HEAD IS MADE TO KEEP THE ISSUE ALIVE, SINCE THE APPEAL OF THE DEPAR TMENT IS PENDING BEFORE THE HONBLE MADRAS HIGH COURT. ACCORDINGLY, HE HAS CON FIRMED THE ADDITION. 14. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF OFFS HORE DRILLING FOR WHICH IT IS REQUIRED TO OWN ASSETS IN THE FORM OF RIGS AND D RILL SHIPS. FURTHER EACH RIG IS A SEPARATE UNIT HAVING ITS OWN TECHNICAL AND COMMER CIAL CAPABILITIES AND HENCE AS A COMMERCIAL PRUDENT DECISION, THE ASSESSE E OWNS RIGS UNDER ITS WHOLLY OWNED SUBSIDIARIES. FOR OWNING AND MAINTAIN ING ITS RIGS, THE ASSESSEE REQUIRES HUGE CAPITAL. IN ORDER TO MEET THE CAPITA L REQUIREMENT OF ITS SUBSIDIARIES, THE ASSESSEE HAS FUNDED THESE SUBSIDI ARIES BY WAY OF ADVANCING LOANS / CONTRIBUTIONS TO THEIR EQUITY. IT IS SUBMI TTED THAT AS PER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT, ANY INTEREST ON BORR OWED FUNDS WHICH ARE USED FOR THE PURPOSE OF BUSINESS AND PROFESSION IS A DEDUCTI BLE EXPENDITURE. 15. IN THE PRESENT CASE, THE BORROWED FUND IS INVES TED IN SUBSIDIARIES WHICH ARE WHOLLY OWNED SUBSIDIARY COMPANY OF THE ASSESSEE TOWARDS FURTHERANCE OF THE ASSESSEES BUSINESS. THUS, THE INTEREST EXPENDI TURE ON BORROWED FUNDS I.T.(TP)A NO.86/CHNY/2019 :- 10 -: UTILIZED FOR THE PURPOSE OF ADDITIONAL CAPITAL IN F OREIGN OWNED SUBSIDIARY SHALL BE ALLOWABLE U/S.36(1)(III) OF THE INCOME TAX ACT, 1961. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS INVESTED THE BORROWED FUNDS I N PURCHASE OF SHARES OF SUBSIDIARY COMPANIES, BOTH FOR THE PURPOSE OF ACQUI RING AND CONTROLLING INTEREST AND DUE TO SUCH ACQUISITION, IT RESULTED IN PROMOTI ON OF THE BUSINESS OF THE ASSESSEE A WELL AS HELPFUL TO THE ASSESSEE FOR HAVI NG MANAGEMENT CONTROL OVER SAID SUCH SUBSIDIARY COMPANIES. 16. HE FURTHER SUBMITTED THAT THE INVESTMENT MADE I N THE SUBSIDIARY IS WITH THE OBJECT TO IMPROVE THE BUSINESS IN THE WORLD MAR KET TO ITS SUBSIDIARY AND THEREFORE THE ASSESSEE HAS BORROWED THE CAPITAL FOR THE BUSINESS PURPOSE, I.E., COMMERCIAL EXPEDIENCY AND THEREFORE THE INTEREST IN CURRED SO AS TO BE TREATED AS BUSINESS EXPENDITURE AND ALLOWABLE FOR DEDUCTION U/S.36(1)(III) OF THE INCOME TAX ACT, 1961. 17. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT THE HONBLE ITAT HAS ADJUDICATED THE ISSUE OF INTEREST IN THE A SSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010 2011, 2011 2012 AND 2012 2013. THE ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFF ICER AND THE ASSESSING OFFICER HAS PASSED A CONSEQUENTIAL ORDER DATED 30.1 1.2018 FOR THE ASSESSMENT YEAR 2012 2013 AND THE ADDITION MADE U /S.36(1)(III) OF THE ACT HAS BEEN DELETED. 18. HE FURTHER SUBMITTED THAT THE HONBLE ITAT FOR THE ASSESSMENT YEAR 2010 2011 AND FOR THE ASSESSMENT YEAR 2011 2012 IN M.A.NOS.067 & I.T.(TP)A NO.86/CHNY/2019 :- 11 -: 68/MDS/2017, VIDE ORDER DATED 29.11.2017 IN PARAGRA PH NO.21 HAS DIRECTED THE ASSESSING OFFICER TO COMPLY WITH THE DIRECTIONS OF THE HONBLE ITAT WITH REGARD TO THE RELEVANCE OF EXPENDITURE U/S.36(1)(II I) OF THE ACT. 19. SUBSEQUENTLY, A CONSEQUENTIAL ORDER HAS BEEN PA SSED BY THE ASSESSING OFFICER ON 04.01.2018 FOR THE ASSESSMENT YEARS 2010 2011 AND 2011 2012, WHEREIN THE SAME ISSUE HAS BEEN DELETED. HE FURTHER SUBMITTED THAT EVEN FOR THE ASSESSMENT YEAR 2013 2014, DCIT FINA LLY HAS PASSED AN ORDER DATED 26.03.2019 BY ALLOWING THE INTEREST EXPENDITU RE U/S.36(1)(III) OF THE ACT. 20. THE LEARNED COUNSEL FOR THE ASSESSEE HAS FURTHE R SUBMITTED THAT AS PER THE ASSESSMENT ORDER WHICH SHOWS THAT THE ADDITION MADE BY THE ASSESSING OFFICER IS ONLY BECAUSE THE APPEAL IS PENDING BEFOR E THE HONBLE HIGH COURT AND SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OW N CASE FOR THE ASSESSMENT YEARS 2010 2011, 2011 2012 AND 2013 2014 AND SUBMITTED THAT THE ADDITION MAY BE DELETED. 21. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS SUBMITTED THAT THE ASSESSEE HAS BORROWED THE FUNDS AND ADVANCED TO THE SISTER CONCERN AND THEREFORE IT IS ONLY FOR THE BEN EFIT TO THE SISTER CONCERN AND NOT A BUSINESS EXPEDIENCY FOR THE ASSESSEE AND THER EFORE THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE ALLO WED U/S.36(1)(III) OF THE ACT. HE HAS RELIED UPON THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE I.T.(TP)A NO.86/CHNY/2019 :- 12 -: OF MAXOPP INVESTMENT LIMITED VS. COMMISSIONER OF IN COME TAX REPORTED IN [2018] 402 ITR 640 (SC). 22. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE CORDS AND HAD GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 23. THE ASSESSEE M/S. ABAN OFFSHORE LIMITED IS A PU BLIC LIMITED COMPANY HAS BORROWED CERTAIN FUNDS AND MADE INVESTMENTS IN THE ASSESSEES FULLY OWNED SUBSIDIARY AND CLAIMED THAT THE INTEREST PAID ON THE SAID AMOUNT IS FOR THE BUSINESS EXPEDIENCY FOR THE REASON THAT THE ASS ESSEE AS WELL AS THE SUBSIDIARY ARE IN THE SAME BUSINESS AND BY ADVANCIN G BORROWED FUNDS AND PURCHASE OF SUBSIDIARY COMPANY SHARES WAS BOTH FOR THE PURPOSE OF ACQUIRING CONTROLLING INTEREST. DUE TO SUCH AN ACQUISITION, THE BUSINESS OF THE ASSESSEE GETS EMERGED SUCH ACQUISITION, THE BUSINESS OF THE ASSESSEE WILL BE IMPROVED AND ALSO ITS BUSINESS EXPEDIENCY. HOWEVER, THE ASS ESSING OFFICER HAS NOT AGREED WITH THE EXPLANATION OF THE ASSESSEE. HE IS OF THE OPINION THAT NO BUSINESS EXPEDIENCY IS FOR THE ASSESSEE USING BORRO WED FUNDS UTILIZED FOR THE PURPOSE OF SISTER CONCERN. WE FIND THAT THE SIMILA R ISSUE CAME UP FOR CONSIDERATION IN THE ASSESSMENT YEAR 2010 2011, 2 011 2012 AND 2012 2013 IN I.T.A. NOS.585/MDS/2015 AND 267/MDS/2016. IN I.T.A. NO.450/MDS/2017 FOR THE ASSESSMENT YEAR 2012 2013 , THE HONBLE TRIBUNAL HAS CONSIDERED FOR THE ASSESSMENT YEAR 2011 2012, 2010 2011 AND 2011 2012 BY ORDER DATED 19.06.2017 AND DIRECTED THE A SSESSING OFFICER TO VERIFY AS TO WHETHER THE INVESTMENT MADE IN SUBSIDIARY TO HAVE CONTROLLING INTEREST, OR I.T.(TP)A NO.86/CHNY/2019 :- 13 -: TO AVOID THE DILUTION OF CONTROLLING INTEREST, OR T O KEEP THE CONTROLLING INTEREST INTACT AS PER THE OBJECT CLAUSE OF THE MEMORANDUM O F ASSOCIATION OF THE ASSESSEE COMPANY AND TO DECIDE THEREUPON. THE CASE OF THE ASSESSEE IS THAT IN PURSUANCE TO THE ORDER PASSED BY THE TRIBUN AL, THE ASSESSING OFFICER DELETED THE ADDITION FOR THE ASSESSMENT YEARS 2010 2011, 2011 2012 AND 2012 2013. WE FIND THAT IN ITA NO.450/MDS/2017 F ORAY 2012-13 VIDE ORDER DATED 19.06.2017, THE TRIBUNAL HAS FOLLOWED THE ASS ESSEES OWN CASE IN ITA NOS. 585/MDS/2015 & 267/MDS/2016 FOR AYS 2010-11 & 2011-12 DATED 14.09.2016. FOR THE SAKE OF CONVENIENCE, THE RELEV ANT PORTION OF THE ORDER EXTRACTED BY THE TRIBUNAL IN ASSESSEES OWN CASE IS EXTRACTED AS UNDER: AFTER HEARING TO BOTH THE PARTIES, WE ARE OF THE OP INION THAT THE SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T. A.NOS.585/MDS/2015 & 267/MDS/2016 FOR THE ASSESSMENT YEARS 2010-2011 AND 2 011 2012 DATED 14.09.2016 WHEREIN THE TRIBUNAL HELD THAT:- 31. WE FIND THAT THE RELIANCE PLACED ON BY THE LEARNE D DEPARTMENTAL REPRESENTATIVE ON THE JUDGEMENT OF THE MADRAS HIGH C OURT IN THE CASE OF TRISHUL INVESTMENTS (SUPRA) IS MISPLACED. THE MAIN CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS THAT THE INTE REST EXPENDITURE ON BORROWINGS USED FOR INVESTMENT IN WHOLLY OWNED SUBSIDIA RY CANNOT BE ALLOWED AS DEDUCTION U/S.36(1)9III) OF THE ACT INSTEAD IT SHOULD BE ADDED TO THE COST OF INVESTMENT, IN VIEW OF THE ABOVE JUDGMEN T OF THE MADRAS HIGH COURT. IN OUR OPINION, WHEN ACTIVITY IS UNDERT AKEN AS AN INVESTMENT ACTIVITY AND INTEREST INCURRED UPTO THE ACQ UISITION OF THE SHARES OF SUBSIDIARY COMPANY COULD BE CONSIDERED AS PART OF INVESTMENT. ONCE IT IS ACQUIRED, THEN IT WILL BE A REVENUE EXPENDITURE. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE WHOLLY OWNED SUBSIDIARY COMPANY HAS ALREADY ACQUIRED SHARES AND IT IS FUNCTIONING. 31.2. IN THIS CASE, THE ASSESSEE CLAIMED THE INTEREST INCURRED ON LOAN WHICH WAS USED FOR THE PURPOSE OF PURCHASE OF SHARES AS REVENUE EXPENDITURE, BUT IT WAS NOT CAPITALIZED AS PART OF THE INVESTMENT IN SHARES. THE CONTENTION OF THE DR WAS THAT IT IS TO B E ADDED TO THE COST OF THE INVESTMENT, SO AS TO INCREASE THE VALUE OF THE C APITAL ASSET. 31.3. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE HAS BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT IN SHARE S AND THEREAFTER THE ASSESSEE HAS INCURRED INTEREST ON IT. IN OUR OPINION , THE INTEREST IS TO BE CONSIDERED AS PART OF THE COST OF INVESTMENT TILL DATE OF ACQUISITION AND INTEREST PAID BY THE ASSESSEE COMMENCING FROM THE DATE OF ACQUISITION OF SHARES TILL THE DATE OF SALE WOULD NOT F ROM PART OF THE COST OF ACQUISITION. 31.4. FURTHER, IT IS A SETTLED LEGAL POSITION THAT I NCOME OF AN ASSESSEE HAS TO BE COMPUTED UNDER VARIOUS HEADS SPECIFIED UNDER SE CTION 14 OF I.T.(TP)A NO.86/CHNY/2019 :- 14 -: THE ACT. THEREFORE, THE DEDUCTIONS ARE TO BE ALLOWE D IN COMPUTING THE INCOME UNDER VARIOUS HEADS ONLY TO THE EXTENT IT IS P ROVIDED BYU THE LEGISLATURE UNDER THAT VERY HEADS. THE COMPUTATION OF CAPITAL GAIN IS PROVIDED IN SECTION 48 OF THE ACT. ACCORDING TO THIS SE CTION, THE ONLY DEDUCTIONS WHICH ARE ALLOWABLE ARE (1) THE COST OF ACQUISITION OF THE ASSET.(2) THE COST OF ANY IMPROVEMENT THERETO AND (3) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE ASSET. THE COST OF ACQUISITION, IN OUR OPINION, MEANS T HE AMOUNT PAID FOR ACQUIRING THE ASSET. ONCE THE ASSET IS ACQUIRED, TH EN ANY EXPENDITURE INCURRED THEREAFTER CANNOT BE CONSIDERED A S THE COST OF ACQUISITION, SINCE SUCH EXPENDITURE WOULD NOT HAVE ANY NEXUS WITH THE ACQUISITION OF THE ASSET. WHEREVER THE LEGISLATURE INTEN DED TO ALLOW SUCH EXPENDITURE AS DEDUCTION, IT HAD SPECIFICALLY PROVID ED SO UNDER VARIOUS HEADS. FOR EXAMPLE, IN COMPUTING THE INCOME FRO M HOUSE PROPERTY, THE ASSESSEE IS ALLOWED DEDUCTION UNDER SEC TION 24 OF THE ACT ON ACCOUNT OF INTEREST PAID ON THE BORROWED FUNDS UT ILISED FOR ACQUIRING THE IMMOVABLE PROPERTY. SIMILARLY, WHEN THE INCOME IS TO BE COMPUTED UNDER THE HEAD 'PROFITS AND GAINS FROM BUSINESS OR PR OFESSION', THE DEDUCTION ACCOUNT OF INTEREST ON BORROWED FUND IS PROV IDED UNDER SECTION 36(1)(III) THE ACT, WHERE THE BUSINESS ASSETS ARE ACQUIRED OUT OF BORROWED FUNDS. AT THIS STAGE, IT MAY BE PERTINENT TO NOTE THAT DEPRECIATION IS ALSO ALLOWABLE AS DEDUCTION UNDER SECTIO N 32 IN RESPECT OF BUSINESS ASSETS ON THE COST OF ACQUISITION. IN DETERMININ G THE COST OF ACQUISITION, THE INTEREST COMPONENT AFTER BRINGING TH E ASSET INTO EXISTENCE IS NOT TAKEN INTO CONSIDERATION AS EXPLANATION 8 TO SECTION 43 OF THE ACT. IF THE INTEREST IS TO BE ADDED TO COST OF A CQUISITION, THEN THE ASSESSEE WOULD BE ENTITLED TO DOUBLE DEDUCTION ONCE U NDER SECTION 36(1)(III) AND THE OTHER UNDER SECTION 32 OF ACT, WH ICH IS NOT PERMISSIBLE IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE C ASE OF ESCORTS LTD. V. UOI[1993] 199 ITR 43. 31.5 SIMILARLY, WHEN THE SHARES ARE PURCHASED BY WAY O F INVESTMENT, AND THE DIVIDEND IS RECEIVED IN RESPECT OF SUCH SHARES, THE INTEREST PAID ON BORROWED FUNDS HAS BEEN HELD TO BE ALLOWABLE AS DE DUCTION AGAINST DIVIDEND INCOME. THE SUPREME COURT HAS GONE A STEP FU RTHER IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY [1978] 115 ITR 5 19, WHEREIN IT HAS BEEN HELD THAT DEDUCTION ON ACCOUNT OF INTEREST P AID ON BORROWED FUNDS IS ALLOWABLE AS DEDUCTION IN COMPUTING THE INCO ME UNDER THE HEAD INCOME FROM OTHER SOURCES, EVEN WHERE THE DIVID END IS NOT RECEIVED IN A PARTICULAR YEAR. IF THIS IS THE LEGAL PO SITION, THEN WE ARE AFRAID, HOW THE INTEREST PAID BY THE ASSESSEE CAN BE CO NSIDERED AS PART OF THE COST OF ACQUISITION OF THE SHARES. IF THE CONTENT ION OF THE ASSESSEE IS ACCEPTED THEN IT WOULD AMOUNT TO ALLOWING DOUBLE DEDUCTION I.E., UNDER SECTION 57 AS WELL AS UNDER SECTION 48 OF THE A CT, WHICH CAN NEVER BE THE INTENTION OF THE LEGISLATURE. AS ALREAD Y STATED, THE DOUBLE DEDUCTION IS PROHIBITED AS LAID DOWN BY THE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA). THE ENTIRE SCHEME OF THE ACT, T HEREFORE, REVEALS THAT INTEREST COMPONENT AFTER THE DATE OF ACQUISITIO N AND TILL THE DATE OF SALE CANNOT BE TREATED AS THE COST OF ACQUISITION. IT I S ONLY ALLOWABLE AS A REVENUE DEDUCTION ON YEAR TO YEAR BASIS AGAINST THE I NCOME GENERATED FROM SUCH ASSET OR LIKELY TO BE GENERATED T O THE EXTENT PROVIDED BY THE LEGISLATURE UNDER DIFFERENT HEADS. 31.6 THE ABOVE VIEW IS ALSO FORTIFIED BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MACINTOSH FINANC E ESTATES LTD. VS. ACIT(12 SOT 324), WHEREIN IT HAS BEEN HELD 'ONCE WE F IND THAT INTEREST EXPENSES IS AN ALLOWABLE EXPENDITURE UNDER THE HEAD 'I NCOME FROM OTHER SOURCES, IT CANNOT BE ALLOWED TO BE ADDED TO THE COST OF INVESTMENT ONLY BECAUSE IN THIS YEAR NO DEDUCTION IS ALLOWABLE BECAUSE THE DIVIDEND INCOME HAS BEEN MADE EXEMPT. THE FOLLOW ING OBSERVATIONS OF SUPREME COURT IN THE CASE OF SAHARANP UR ELECTRIC I.T.(TP)A NO.86/CHNY/2019 :- 15 -: SUPPLY CO. LTD VS. CIT (1992) 194 ITR 294 (SC) WERE RELIED ON BY THE COURT:- IN CASE MONEY IS BORROWED BY A NEWLY STARTED COMPANY WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING I TS PLANT, THE INTEREST INCURRED BEFORE THE COMMENCEMENT OF PRODUCTION ON SUCH BORROWED MONEY CAN BE CAPITALISED AND ADDED TO THE COST OF THE FIXED ASSETS. 31.7 A BARE LOOK AT THE ABOVE OBSERVATIONS REVEALS TH AT ACTUAL COST WOULD INCLUDE ALL EXPENDITURE NECESSARY TO BRING THE ASS ETS INTO EXISTENCE AND PUT THEM IN WORKING CONDITION. NOWHERE IN THE ABOVE OBSERVATIONS, THE SUPREME COURT HELD THAT THE EXPEND ITURE INCURRED AFTER THE ACQUISITION OF ASSET WOULD BE INCLUDED IN TH E COST OF ASSETS. THE TERMINAL POINT IS THE TIME WHEN THE ASSET IS BROUGH T INTO EXISTENCE OR WHEN THE ASSET IS PUT IN A WORKING CONDITION. THEREF ORE, ON THE BASIS OF THE SUPREME COURT JUDGMENT, IT CANNOT BE SAID TH AT EXPENDITURE INCURRED AFTER THE ASSET BROUGHT INTO EXISTENCE, I.E ., AFTER THE ACQUISITION OF THE ASSET WOULD FORM PART OF THE ACTUAL COST. THE S UPREME COURT LAID DOWN THE PROPOSITION THAT INTEREST PAID ON MONIES BOR ROWED FOR ACQUISITION OF CAPITAL ASSET AND TO MEET EXPENSES CONNECT ED WITH ITS INSTALLATION ETC. AND CAPITALIZED, HAS TO BE ADDED TO T HE COST OF ASSET FOR THE PURPOSE OF DEPRECATION. 31.8 THUS IN OUR OPINION IF THE MONEY WAS BORROWED FOR PURCHASE OF SHARES OF SUBSIDIARY COMPANY FOR THE PURPOSE OF ACQUIRIN G CONTROLLING INTEREST AND ACQUISITION OF SUCH CONTROLLING INTEREST WAS OF THE BUSINESS OF THE ASSESSEE AND IT RESULTED IN PROMOTE THE BUSINESS OF THE ASSESSEE AS WELL AS HELPFUL TO THE ASSESSEE FOR HAVING MANAGEME NT CONTROL OVER SAID SUCH SUBSIDIARY COMPANY, THEN THE INTEREST EXPEND ITURE SHOULD BE ALLOWED U/S.36(1)(III) OF THE ACT. FURTHER IF THE AS SESSING OFFICER FOUND THAT INVESTMENT IN SHARES OF SUBSIDIARY COMPANY NOT FOR MAINTAINING CONTROLLING INTEREST, THEN THE ASSESSING OFFICER SHOUL D SEE THAT THERE CANNOT BE ANY DISALLOWANCE IN RESPECT OF INVESTMENT OF ASSESSEES OWN FUND. THIS IS SO BECAUSE THE BORROWED FUNDS AND OWN FU NDS ARE ADMITTEDLY MIXED UP IN SUCH CASES, THE DISALLOWANCE O F INTEREST HAS TO BE MADE ON PROPORTIONATE BASIS AND BENEFIT HAS TO BE GIVEN TO THE ASSESSEE TOWARDS INVESTMENT OF OWN FUND. IT IS ALSO TO BE NOTED THAT WHILE COMPUTING DISALLOWANCE IF ANY U/S.36(1)(III) OF THE ACT, INTEREST CONSIDERED FOR DISALLOWANCE U/S.14A OF THE ACT WAS REQUI RED TO BE EXCLUDED. WITH THIS OBSERVATION, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSE SSEE. IN THE RESULT, ITA NO.585/MDS/2016 IS PARTLY ALLOWED FOR STATISTICAL P URPOSE. 4. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF TH E TRIBUNAL, WE ARE INCLINED TO REMIT THE ISSUE TO THE FILE OF AO ON SIMILAR DIRECTION. FURTH ER, WE DIRECT THE AO TO VERIFY WHETHER THE INVESTMENT IS MADE IN SUBSIDIARY TO HAVE A CONTROLLING INTEREST, OR TO AVOID THE DILUTION OF CONTROLLING INTEREST, OR TO KE EP THE CONTROLLING INTEREST INTACT AS PER OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATION OF THE ASSESSE E COMPANY AND TO DECIDE THEREUPON. HENCE, THIS GROUND IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. 24. IN VIEW OF THE ABOVE DECISION OF THE HONBLE IT AT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012 2013 IN I.T.A. NO.450/MDS/2017 DATED I.T.(TP)A NO.86/CHNY/2019 :- 16 -: 19.06.2017 AND ALSO THE PRINCIPLE OF CONSISTENCY LA ID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS COMMISSIONER OF INCOME TAX REPORTED IN [1992] 193 ITR 321 (SC), WE DIRECT THE ASSESSING OFFICER TO FOLLOW THE ABOVE PASSED ORDER THEREUPON. SO FAR AS RELIANCE PLACED BY LD. DR IN THE CASE OF MAXOPP INVESTMENT LTD. (SU PRA) IS CONCERNED, NO APPLICATION TO THE FACTS OF THIS CASE. THUS THE GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 25. THE FOURTH GROUND OF APPEAL RELATING TO NON-DEDUCTI ON OF TAX ON PROFESSIONAL AND CONSULTANCY FEE: FACTS ARE IN BRIEF THAT IN THE ASSESSMENT ORDER, T HE ASSESSING OFFICER HAS NOTED THAT IT IS SEEN FROM THE FINANCES FURNISH ED BY THE ASSESSEE THAT IT HAS INCURRED RS.64.00 CRORES TOWARDS PROFESSIONAL A ND CONSULTANCY FEES. ON VERIFICATION OF THE DETAILS, IT IS SEEN THAT THE AS SESSEE HAS NOT DEDUCTED TAX FOR AN AMOUNT OF RS.2,48,46,142/- STATING THAT THE TDS IS NOT APPLICABLE AS EXPENSES INCURRED OUTSIDE INDIA (DUBAI). FOR THE S AKE OF CONVENIENCE, THE RELEVANT PORTION IS EXTRACTED AS UNDER: 7. NON-DEDUCTION OF TDS FOR TECHNICAL SERVICES REND ERED: 7.1. IT IS SEEN FROM THE FINANCIALS FURNISHED BY THE ASSESSEE THAT IT HAS INCURRED AN AMOUNT OF RS.64.00 CRORES TOWARDS PROFESSIONAL AND C ONSULTANCY FEES. ON VERIFICATION OF THE DETAILS, IT IS SEEN THAT THE ASSESSE E HAS NOT DEDUCTED TAX FOR AN AMOUNT OF RS.2,48,46,142/- STATING THAT THE TDS IS NOT APPLICABLE AS EXPENSES INCURRED OUTSIDE INDIA AND PAID OUT INDIA (FROM DUB AI). SL.NO. NAME OF THE SERVICE PROVIDER AMOUNT (IN RS.) 1) ANCHOR MARINE EQUIPMENT CO., 530,835 2 ) AQUALIS OFFSHORE MARI NE SERVICES 318,901 3 ) BAHWAN CYBERTECH PRIVATE LIMITED 340,062 4) BLUE CHIP MARINE FZC 205,620 5) BUREAU VERITAS 11,17,805 6) CAPT. MARK O CARROLL 42,34,657 I.T.(TP)A NO.86/CHNY/2019 :- 17 -: 7) CAPT. BERNARDLESAGE 9,64,960 8 ) MORENO & ASSOCIATES 13,131 9) OILFIELD AUDIT SERVICES INC. 5,04,795 10) PARVEEN KAPOOR 16,60,592 11) PT. TENGA BARU NUANSA PERSADA 89,879 12) SEAWORKS SURVEY EST. 5,01,352 13 ) SING CLASS 40,31,891 14) SOLAS MARINE SERVICES CO., L.L.C. 4,20,530 15) TUBE STAR INTERNATIONAL FZC 41,97,437 16) TUBESTAR OIL & GAS SERVICES PVT., 8,443 17) WESTERN OCEANIC CONSULTANTS JL 57,05,252 GRAND TOTAL 2,48,46,142 FROM THE ABOVE, IT IS CLEAR THAT ALL THE ABOVE PAYM ENTS ARE IN THE NATURE FEES FOR TECHNICAL SERVICES WHICH ATTRACTS THE PROV ISIONS OF SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961. ACCORDINGLY, THE PAYMENT OF THE PROFESSIONAL AND CONSULTANCY FEES TO A TUNE OF RS.2,48,46,142/- PAID TO VARIOUS PARTIES AS LISTED ABOVE ATTRACTS THE PROVISION OF SECTION 9(1)(VII) O F THE ACT AND TAX HAS TO BE DEDUCTED AT SOURCE OF THESE PAYMENTS. THE SAME IS ADDED BACK TO THE INCOME OF THE ASSESSEE. THE HONBLE DISPUTE RESOLUT ION PANEL [DRP] HAS REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE, CON FIRMED THE DRAFT ASSESSMENT ORDER. 26. ON APPEAL BEFORE US, THE LEARNED COUNSEL FOR TH E ASSESSEE HAS SUBMITTED THAT FOR THE ASSESSMENT YEAR UNDER CONSID ERATION, THE COMPANY HAS MADE PAYMENT FOR CONSULTANCY FEE TO VARIOUS PARTIES . THE SERVICES ARE UTILIZED BY THE COMPANY AS THE EARNING SOURCE IS LOCATED OUT SIDE INDIA AND SUBMITTED THAT FOR THE PURPOSE OF BUSINESS AND PROMOTION CARR IED ON OUTSIDE INDIA (DUBAI) AND AS SUCH THESE INCOMES WERE NOT CHARGEABLE TO TA X IN THE HANDS OF THE NON-RESIDENT SERVICE PROVIDERS. HE FURTHER SUBMITT ED THAT THE PROVISIONS OF SECTION 195(2) OF THE INCOME TAX ACT, 1961 APPLIES ONLY WHEN A PART OF THE SUM PAID TO NON-RESIDENTS WILL BE INCOME CHARGEABLE IN INDIA. SINCE THE I.T.(TP)A NO.86/CHNY/2019 :- 18 -: PAYMENTS ARE TO DUBAI COMPANIES AND CONSULTANCY SER VICES ARE NOT CHARGEABLE TO TAX IN INDIA. THE PAYMENT IS MADE OU TSIDE INDIA BY THE BRANCH OF THE ASSESSEE, AS THE BRANCH DID NOT HAVE ANY EST ABLISHMENT IN INDIA. NO SERVICES ARE RENDERED IN INDIA AND THEREFORE SECTIO N 195(2) OF THE ACT IS NOT APPLICABLE. THEREFORE, THERE IS NO NEED TO DEDUCT TDS AS THERE IS NO APPLICATION OF THE SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961. 27. THE LEARNED COUNSEL FOR THE ASSESSEE TO SUPPORT HIS ARGUMENTS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT OF I NDIA IN THE CASE OF M/S. GE INDIA TECHNOLOGY CENTRE PRIVATE LIMITED VS COMMI SSIONER OF INCOME TAX REPORTED IN [2010] 327 ITR 456. HE ALSO RELIED UPO N THE DECISION OF THE HONBLE ITAT, CHENNAI BENCHES IN THE CASE OF THE AS SISTANT COMMISSIONER OF INCOME TAX VS. M/S. M.M. FORGINGS LIMITED REPORTED IN I.T.A. NO.2679/MDS/2014. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO SUBMITTED THAT THE SIMILAR ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 2012-13 IN ITA NO.450/M DS/2017 DATED 19.06.2017. 28. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE RELIED UPON THE ORDER OF THE LOWER AUTHORITIES. 29. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS PAID PROFESSIONAL & CONSULTATION FEE A ND HAD NOT DEDUCTED THE TDS. THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE HAS MADE CERTAIN I.T.(TP)A NO.86/CHNY/2019 :- 19 -: PAYMENTS AS CONSULTANCY FEES TO VARIOUS PARTIES. T HESE SERVICES WERE UTILIZED BY THE COMPANY FOR EARNINGS FROM THE SOURCE LOCATE D OUTSIDE INDIA, I.E. FOR RIG AND CONSULTANCY OR FOR THE PURPOSE OF BUSINESS OR P ROFESSION CARRIED ON OUTSIDE INDIA, I.E. DUBAI BRANCH; AS SUCH THESE INC OMES WERE NOT CHARGEABLE TO TAX TO NON-RESIDENT SERVICE PROVIDERS. IT IS SU BMITTED THAT THE ASSESSING OFFICER WITHOUT EXAMINING THE PROVISION OF SECTION 195(2) OF THE ACT SIMPLY MADE AN ADDITION TO SECTION 9(1)(VII)(B) OF THE INC OME TAX ACT, 1961. IT IS SUBMITTED THAT THE ASSESSEE HAS NOT UTILIZED THE SE RVICES OF THE PARTIES IN INDIA AND ALSO PAYMENTS WERE MADE OUTSIDE INDIA AND THE S ERVICES RECEIVED FROM NON-RESIDENTS UTILIZED IN BUSINESS OR PROFESSION CA RRIED OUTSIDE INDIA WOULD NOT DEEM TO BE INCOME ACQUIRED IN INDIA TO THE NON-RESI DENTS. 30. WE HAVE HEARD BOTH THE PARTIES SIDES, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. 31 THE SIMILAR ISSUE HAS BEEN CONSIDERED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2012-13 IN I TA NO.450/MDS/2017 DATED 19.06.2017, WHEREIN THE HONBLE TRIBUNAL HAS REMITTED THE MATTER BACK TO THE FILE OF AO BY OBSERVING AS UNDER: 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. THE EXPLANATION INCORPORATED IN SECTION 9 DECLARES THAT WHERE THE INCOME IS DEEMED TO ACCRUE OR ARISE IN I NDIA UNDER CLAUSE (V), (VI) AND (VII) AND SUB-SEC.(1), SUCH INCOME SH ALL BE INCLUDED IN THE TOTAL INCOME OF THE NON-RESIDENT, WHETHER OR NOT BE RESIDENT AS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTI ON IN INDIA. THE PLAIN READING OF THE SAID PROVISIONS SUGGESTS THAT CRITERION OF RESIDENCE, PLACE OF BUSINESS OR BUSINESS CONNECTION OF A NON-R ESIDENT IN INDIA HAS BEEN DONE AWAY WITH FOR FASTENING THE TAX LIABILITY . HOWEVER, THE CRITERIA OF RENDERING SERVICE IN INDIA AND THE UTIL IZATION OF THE SERVICE IN INDIA TO ATTRACT TAX LIABILITY U/S.9(I)(VII) REMAIN ED UNTOUCHED AND UNAFFECTED BY THE EXPLANATION TO SECTION 9 OF THE A CT AND OUTSIDE INDIA. I.T.(TP)A NO.86/CHNY/2019 :- 20 -: THEREFORE, THE TWIN CRITERION OF RENDERING OF SERVI CES IN INDIA AND UTILIZATION OF SERVICES IN INDIA BECOME EVIDENTLY N ECESSARY CONDITION TO DEDUCT TAX. HOWEVER, IN RESPECT OF THE SAID PAYMEN TS, THE RENDERING OF SERVICES BEING PURELY OFF SHORE AND OUTSIDE INDIA, THE WHATEVER PAID TOWARDS THE SAID SERVICES DOES NOT ATTRACT TAX LIAB ILITY. 12.1 IN VIEW OF THE ABOVE, WE ARE INCLINED TO RE MIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE AFRES H IN THE LIGHT OF THE ABOVE ORDER ALONG WITH THE CONCERNED DTAA AND DECID E THEREUPON. THE ISSUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE S. 32. IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOWING THE ORDER OF CO-ORDINATE BENCH OF THE TRIBUNAL, SET ASIDE THE ORDER PASSED B Y THE AO AND REMIT THE MATTER BACK TO THE AO AND DIRECT THE AO TO FOLLOW T HE ABOVE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE AND PASS ASSESSMENT ORDER THEREUPON. THUS THE GROUND OF APPEAL FILED BY THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSES. 33. THE FIFTH GROUND OF APPEAL RELATING TO DISALLOWANCE FOR NON DEDUCTION OF TAX OF PAYMENT OF DRILLING SERVICES & MANAGEMENT FEE : FACTS ARE IN BRIEF THAT IN THE ASSESSMENT ORDER, T HE ASSESSING OFFICER HAS NOTED THAT ON VERIFICATION OF THE PROFIT AND LO SS ACCOUNT FOR THE YEAR ENDED 31.03.2015, IT IS SEEN THAT THE ASSESSEE HAD CLAIME D AN AMOUNT OF RS.6,67,75,950/- TOWARDS DRILLING SERVICES AND MAN AGEMENT FEES UNDER THE HEAD OTHER EXPENSES. THE ASSESSEE HAS FILED THE DETAILS IN RESPECT OF THE PAYMENT ON DRILLING SERVICES AND MANAGEMENT FEES AN D BY CONSIDERING THE SAME, THE ASSESSING OFFICER HAS HELD THAT THE PAYME NT WITH REGARD TO MANAGEMENT FEES AMOUNTING TO RS.6,67,75,950/- PAID TO HALEDON INTERNATIONAL CORPORATION AND HESTER DEVELOPMENT IN C. ATTRACTS THE PROVISIONS I.T.(TP)A NO.86/CHNY/2019 :- 21 -: OF SECTION 9(1)(VII) AND TAX HAS TO BE DEDUCTED AT SOURCE OF THESE PAYMENTS. ACCORDINGLY, THE SUM IS ADDED TO THE TOTAL INCOME O F THE ASSESSEE. 34. DISPUTE RESOLUTION PANEL [DRP] HAS CONFIRMED TH E ORDER OF THE ASSESSING OFFICER. 35. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2012 2013 IN I.T.A. NO450/MDS/2017 DATED 19.06.20 17. 36. THE LD. DR STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. DRP. 37. WE HAVE HEARD BOTH THE PARTIES SIDES, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. 38 THE SIMILAR ISSUE HAS BEEN CONSIDERED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2012-13 IN I TA NO.450/MDS/2017 DATED 19.06.2017, WHEREIN THE HONBLE TRIBUNAL HAS REMITTED THE MATTER BACK TO THE FILE OF AO BY OBSERVING AS UNDER: 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. THE EXPLANATION INCORPORATED IN SECTION 9 DECLARES THAT WHERE THE INCOME IS DEEMED TO ACCRUE OR ARISE IN I NDIA UNDER CLAUSE (V), (VI) AND (VII) AND SUB-SEC.(1), SUCH INCOME SH ALL BE INCLUDED IN THE TOTAL INCOME OF THE NON-RESIDENT, WHETHER OR NOT BE RESIDENT AS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTI ON IN INDIA. THE PLAIN READING OF THE SAID PROVISIONS SUGGESTS THAT CRITERION OF RESIDENCE, PLACE OF BUSINESS OR BUSINESS CONNECTION OF A NON-R ESIDENT IN INDIA HAS BEEN DONE AWAY WITH FOR FASTENING THE TAX LIABILITY . HOWEVER, THE CRITERIA OF RENDERING SERVICE IN INDIA AND THE UTIL IZATION OF THE SERVICE IN INDIA TO ATTRACT TAX LIABILITY U/S.9(I)(VII) REMAIN ED UNTOUCHED AND UNAFFECTED BY THE EXPLANATION TO SECTION 9 OF THE A CT AND OUTSIDE INDIA. THEREFORE, THE TWIN CRITERION OF RENDERING OF SERVI CES IN INDIA AND UTILIZATION OF SERVICES IN INDIA BECOME EVIDENTLY N ECESSARY CONDITION TO I.T.(TP)A NO.86/CHNY/2019 :- 22 -: DEDUCT TAX. HOWEVER, IN RESPECT OF THE SAID PAYMEN TS, THE RENDERING OF SERVICES BEING PURELY OFF SHORE AND OUTSIDE INDIA, THE WHATEVER PAID TOWARDS THE SAID SERVICES DOES NOT ATTRACT TAX LIAB ILITY. 12.1 IN VIEW OF THE ABOVE, WE ARE INCLINED TO RE MIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE AFRES H IN THE LIGHT OF THE ABOVE ORDER ALONG WITH THE CONCERNED DTAA AND DECID E THEREUPON. THE ISSUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE S. 39. IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOWING THE ORDER OF CO-ORDINATE BENCH OF THE TRIBUNAL, WE SET ASIDE THE ORDER PASSE D BY THE AO AND REMIT THE MATTER BACK TO THE AO AND DIRECT THE AO TO FOLLOW T HE ABOVE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE AND PASS ASSESSMENT ORDER THEREUPON. THUS THE GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 40. THE SIXTH GROUND OF APPEAL RELATING TO DENIAL OF TA X CREDIT U/S. 90 OF THE ACT: FACTS ARE IN BRIEF THAT THE ASSESSEE HAS EARNED INT EREST INCOME OF RS.8,67,00,000/- FROM M/S. ABAN HOLDINGS PVT. LTD. WHICH IS A SINGAPORE REGISTERED COMPANY AND WITHHOLDING THE TAX OF SGD E QUIVALENT TO INR RS. 1,12,96,962/- HAS BEEN DEDUCTED BY M/S. ABAN HOLDIN GS PVT. LTD. UNDER THE SINGAPORE INCOME TAX ACT. THE ASSESSEE HAS CLAIMED CREDIT OF THE SAME IN THE RETURN OF INCOME. THE AO DISALLOWED RELIEF U/S . 90 OF THE ACT AMOUNTING TO RS. 1,12,96,962/- WHICH WAS DEDUCTED BY SINGAPORE A UTHORITIES ON THE INTEREST INCOME FROM M/S. ABAN HOLDING PVT. LTD. UNDER THE S INGAPORE INCOME TAX ACT. THE ASSESSEE HAS SUBMITTED BEFORE US THAT SINCE THE INCOME FROM FOREIGN COUNTRY OF RS. 8,66,10,040/- WAS OFFERED TO TAX BY THE ASSESSEE, THE ASSESSEE I.T.(TP)A NO.86/CHNY/2019 :- 23 -: IS ENTITLED TO GET CREDIT TO THE EXTENT OF TAX PAID IN A FOREIGN COUNTRY. THE ASSESSEE HAS FILED BREAKUP OF THE INTEREST INCOME I N PAPER BOOK PAGE NO.481 AND ALSO FILED DETAILS OF THE WITHHOLDING THE TAX R ECEIVED FROM SINGAPORE TAX AUTHORITIES IN PAPER BOOK PAGE NO.440 TO 441. IT I S ALSO SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE FOR THE AY 2012-13 VIDE ORDER DATED 19.09.2017 IN ITA NO.450/MDS/2017 AND SUBMITTED THA T THE AO WHILE GIVING EFFECT TO THE DIRECTIONS OF THE HON'BLE ITAT FOR AY 2012-13 ON 30.11.2018 HAS ALLOWED THE TAX CREDIT FACILITY TO THE ASSESSEE-COM PANY BY FOLLOWING THE DIRECTIONS OF THE HON'BLE ITAT AND SUBMITTED THAT T HE SAME MAY BE FOLLOWED. 41. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTE D THE ORDERS OF THE AUTHORITIES BELOW. 42. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. 43. THE ASSESSEE HAS EARNED THE INTEREST INCOME OF RS. 8,67,00,000/- FROM M/S. ABAN HOLDINGS PVT. LTD. WHICH IS SINGAPORE REG ISTERED COMPANY AND WITHHOLDING THE TAX EQUIVALENT TO INR RS. 1,12,96,9 62/- HAS BEEN DEDUCTED BY M/S. ABAN HOLDING PVT. LTD. UNDER THE SINGAPORE INC OME TAX ACT. THE ASSESSEE HAS CLAIMED CREDIT OF THE SAME IN HIS RETU RN OF INCOME. THE AO HAS DENIED THE CLAIM MADE BY THE ASSESSEE. BEFORE US, T HE ASSESSEE HAS SUBMITTED THAT SINCE THE INCOME OF THE FOREIGN COUN TRY WAS OFFERED FOR TAX BY THE ASSESSEE, THE ASSESSEE IS ENTITLED TO GET ADVAN CE CREDIT TO THE EXTENT TAX PAID IN FOREIGN COUNTRY. WE FIND THAT THIS ISSUE H AS BEEN CONSIDERED BY THE CO- I.T.(TP)A NO.86/CHNY/2019 :- 24 -: ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN C ASE IN ITA NO.450/MDS/2017 FOR AY 2012-13 VIDE ORDER DATED 19. 06.2017, THE ISSUE IS REMITTED BACK TO THE FILE OF AO. FOR THE SAKE OF C ONVENIENCE, THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: 21. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASS ESSES OWN CASE IN ITA NOS.585/MDS/2015 & 267/MDS/2016 FOR THE ASSE SSMENT YEARS 2010-11 AND 2011-12 DATED 14.9.2016 WHEREIN TRIBUNA L HELD THAT:- 23. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE CAME FOR CONSIDERATION IN ASSESS EES OWN CASE IN I.T.A.NO.1159/MDS/2012 CHALLENGING THE ACTION OF TH E CIT(A) IN RESTRICTING THE ASSESSEES CLAIM OF RELIEF U/S 90 O F THE ACT OF 224,67,411/- TO THE EXTENT OF TAX PAYABLE IN INDIA ON NET INCOME OF 516,93,732/- I.E DIFFERENCE BETWEEN INTEREST EARNED FROM M/S AHPL AND INTEREST PAID ON BORROWINGS MADE FOR ADVANCING THE LOANS TO M/S AHPL. THE TRIBUNAL WHILE ADJUDICATING THE GROUNDS, PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL IN THE CASE OF BANK OF BA RODA VS CIT IN I.T.A.NO.2927/MDS/2011 DATED 25.7.2014 WHEREIN THE TRIBUNAL HAS GIVEN A DIRECTION THAT THE INCOME OF THE BRANCHES O F THE ASSESSEE SHALL ALSO TAXABLE IN INDIA I.E IT WOULD BE INCLUDED IN T HE RETURN OF INCOME FILED BY THE ASSESSEE IN INDIA AND WHATEVER TAXES H AVE BEEN PAID BY THE BRANCHES IN THE OTHER CONTRACTING STATES I.E TH E SOURCE COUNTRY, CREDIT OF SUCH TAXES SHALL BE GIVEN. THEREAFTER, TH E TRIBUNAL IN THIS CASE REMITTED THE ISSUE TO THE FILE OF THE ASSESSING OFF ICER TO DECIDE AFRESH IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBUNAL IN THE CASE OF BANK OF BARODA IN I.T.A.NO.2927/MUM/2011 DATED 25.7.2014. L ATER ASSESSEE FILED MA IN MA NOS. 95 & 96/MDS/2016 STATING THAT T HE DIRECTION GIVEN BY THE TRIBUNAL IS NOT APPROPRIATE. SINCE THE ASSES SEE HAS NO INCOME FROM ANY BRANCHES IN SINGAPORE, THAT DECISION CANNO T BE APPLIED TO THE ASSESSEES CASE. THE TRIBUNAL WHILE ADJUDICATING TH E SAID MA VIDE ORDER DATED 29.7.2016 HELD AS FOLLOWS : WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. IN OUR OPINION, THE INTERPRETATION OF THE O RDER OF THE TRIBUNAL BY THE LD. AR IS MISCONCEIVED. THE TRIBUNAL WAS OF THE OPINION THAT IF THE INCOME FROM FOREIGN COUNTRY IS OFFERED TO TA X BY THE ASSESSEE BY WHATEVER MEANS, THE ASSESSEE HAS TO GET TAX CRED IT TO THE EXTENT THE TAX WAS PAID IN FOREIGN COUNTRY. IN OTHER WORDS , ONCE THE INCOME IS INCLUDED EITHER IN THE PROFIT & LOSS ACCOUNT OR IN THE RETURN OF INCOME, THE CORRESPONDING TAX CREDIT ON THE SAME IN COME HAS TO BE GIVEN. ACCORDINGLY, WE ARE OF THE OPINION THAT THER E IS NO NEED OF APPREHENSION FOR THE ASSESSEE THAT THE ASSESSING OF FICER WILL MISINTERPRET THE ORDER OF THE TRIBUNAL. THEREFORE, WE DO NOT FIND ANY MERIT IN THE ARGUMENT OF THE LD. AR. ACCORDINGLY, T HE MISCELLANEOUS PETITION IS DISMISSED. IN VIEW OF THE ABOVE, FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO HOLD THAT ONCE THE INT EREST INCOME I.T.(TP)A NO.86/CHNY/2019 :- 25 -: SUBJECT TO TAX IN ANY MANNER IN THE HANDS OF THE AS SESSEE, THE CORRESPONDING TAX CREDIT TO BE GIVEN. ACCORDINGLY, THIS GROUND IS REMITTED TO THE AO TO EXAMINE THE ISSUE IN THE LIGH T OF OUR ABOVE FINDINGS. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE T RIBUNAL, THIS ISSUE IS REMITTED TO THE FILE OF LD. ASSESSING OFFI CER AND DECIDE ACCORDINGLY. HENCE, THIS GROUND OF APPEAL IS PARTLY ALLOWED. WE THEREFORE RESPECTFULLY FOLLOWING THE ORDER OF TH E CO-ORDINATE BENCH OF THIS TRIBUNAL, WE SET ASIDE THE ORDER PASSED BY THE AO AND REMIT THE MATTER BACK TO THE FILE OF AO. WE DIRECT THE AO TO FOLLOW THE ORDER PASSED BY THE TRIBUNAL FOR AY 2012-13 AND PASS ORDER THEREUPON. THUS THE GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 44. THE SEVENTH GROUND OF APPEAL RELATING TO DISALLOWAN CE OF LOSS ON FORWARD CONTRACTS : FACTS ARE IN BRIEF THAT IN THE ASSESSMENT ORDER, T HE ASSESSING OFFICER HAS NOTED THAT AS PER THE NOTE.23 OF THE FINANCIALS (OTHER EXPENSES), IT IS REPORTED THAT AN AMOUNT OF RS.5.53 CRORES IN THE PR OFIT AND LOSS ACCOUNT IS AT LOSS IN RESPECT OF THE CANCELLATION OF FORWARD CONT RACTS AS ON 31 ST MARCH, 2015. THE ASSESSING OFFICER HAS CALLED FOR THE RELEVANT D ETAILS. 45. AFTER CONSIDERING THE RELEVANT DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER HAS NOTED THE EXPORT OF GOODS AND SERVICES TO FOREIGN COUNTRIES AND THAT ARE EXPOSED TO THE VAGARIES OF F LUCTUATIONS IN THE FOREX MARKET. IN ORDER TO PROTECT AGAINST THESE VAGARIES OF FOREX TRANSACTION, EXPORTERS ARE ALLOWED TO HEDGE THEIR RISK WITHIN TH E REGULATORY FRAMEWORK OF THE I.T.(TP)A NO.86/CHNY/2019 :- 26 -: FOREIGN EXCHANGE MANAGEMENT (FOREIGN EXCHANGE DERIV ATIVE CONTRACTS) REGULATIONS, 2000. THERE ARE MANY INSTRUMENTS AVAI LABLE TO HEDGE THEIR RISK LIKE FORWARD CONTRACT, OPTION CONTRACT, SWAP CONTRA CT AND OTHERS (GENERALLY TERMED AS FOREX DERIVATIVES). THESE INSTRUMENTS PR OTECT THE FOREIGN CURRENCY RECEIVABLE OF THE EXPORTERS FOR THE EXPORTS IN GOOD S AND SERVICES. THESE INSTRUMENTS OFFER PROTECTION BY ALLOWING THE EXPORT ERS TO EXCHANGE THE FOREIGN CURRENCIES RECEIVED OUT OF EXPORTS TO INDIAN RUPEES IN A PRE-AGREED RATE OF EXCHANGE IN FUTURE SPECIFIED DATE, SUBJECT TO VARIO US TERMS AND CONDITIONS THAT VARY ACCORDING TO THE TYPE OF DERIVATIVE COUNTRIES. 46. SO FAR AS THE FACTS OF THE ASSESSEE IS CONCERNE D, THE CONFIRMATION SUBMITTED BY THE ASSESSEE SHOWED THAT THE CONTRACTS WERE NOT SETTLED BY ACTUAL DELIVERY BUT BY CANCELLATION OR PREMATURE CL OSURE BY PAYING OR RECEIVING THE DIFFERENCE IN THE AMOUNT BETWEEN THE RATE AT WH ICH THE CONTRACT HAS BEEN ENTERED AND THE PREVAILING EXCHANGE RATE ON THE DAT E OF CANCELLATION OF THE SETTLEMENT. THUS, THE ASSESSEES EXPLANATION THAT FORWARD CONTRACT ARE BASICALLY RISK MANAGEMENT TOOLS AND THEY ARE USEFUL IN FACILITATING TEMPORARY HEDGING OF PRICE RISKS THAT WAS FOUND TO BE INCORRE CT. SO, IT IS DECIDED THAT THE INCOMES RECEIVED FROM THE FORWARD AND OPTIONS CONTR ACTS AND LOSS ON THE SAME IS NOT AN INCOME OR LOSS FROM HIS BUSINESS AND ACCORDINGLY THE NET OF THE INCOME EARNED AND THE LOSS SUFFERED DESERVES DISALL OWANCE AS THESE TRANSACTIONS IS NOT LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS UNDER SECTION 37 OF THE INCOME TAX ACT, 1961. I.T.(TP)A NO.86/CHNY/2019 :- 27 -: 47. ACCORDINGLY, THE ASSESSING OFFICER CAME TO A CO NCLUSION THAT THE ASSESSEES TRANSACTIONS ARE SPECULATIVE TRANSACTION S FOR THE REASON THAT THERE ARE CONTRACTS BETWEEN THE ASSESSEE AND THE FINANCIA L INSTITUTIONS (IN THIS CASE BANKS) FOR NOT DELIVERED AND WITHOUT ANY SPECIFIC U NDERLYING EXPOSURE. THE ASSESSEE HAD NOT FURNISHED ANY RISK ANALYSIS STATEM ENT WITH UNDERLYING EXPOSURE. THE ASSESSEE HAS NEITHER CONTRACT NOTES NOR THE RISK ANALYSIS STATEMENT SUBMITTED TO THE BANKS WHILE APPLYING FOR THE FORWARD CONTRACTS. THERE WAS NO EVIDENCE FURNISHED WITH REGARD TO THE UNDERLYING RISK FOR WHICH FORWARD CONTRACTS WERE TAKEN. THE ASSESSEE NEITHER PROVED THAT THERE WAS AN UNDERLYING ASSET NOR FURNISHED ANY CONFIRMATION IN THIS REGARD AND THE BANKS WITH WHOM SUCH CONTRACTS WERE ENTERED. ACCORDINGL Y, HE HAS DISALLOWED THE AMOUNT OF RS.5.53 CRORES BY TREATING IT AS SPECULAT IVE LOSS. THE ASSESSEE HAS RAISED OBJECTIONS ON THE DRAFT AS SESSMENT ORDER PASSED BY THE ASSESSING OFFICER BEFORE THE DRP AND THE DRP HAS CONFIRMED THE DRAFT ASSESSMENT ORDER AND DIRECTED THE ASSESSI NG OFFICER TO COMPLETE THE ASSESSMENT. 48. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE COMPANYS MAIN LINE BUSINESS IS CHARTER-HIRING OF O FFSHORE DRILLING RIGS TO OIL COMPANIES LIKE ONGC, HARDY EXPLORATION, ETC. THE R EVENUE IS IN THE NATURE OF CHARTER-HIRE INCOME FROM DRILLING AND PRODUCTION SE RVICES. ALL PAYMENTS UNDER THESE AGREEMENTS ARE MADE FOR PROVISION OF THE RIGS ON CHARTER-HIRE AND DRILLING SERVICES IN FOREIGN CURRENCY, PREDOMINANTLY IN USD. THE NATURE OF COMPANYS I.T.(TP)A NO.86/CHNY/2019 :- 28 -: BUSINESS ALSO REQUIRES SUBSTANTIAL IMPORTS FOR EQUI PMENT AND STORES AND SPARES FOR THE MAINTENANCE AND UPKEEP OF THE OFFSHO RE RIGS IN ORDER TO ENSURE UNINTERRUPTED DRILLING OPERATIONS. 49. HE ALSO SUBMITTED THAT WHEN THE ENTIRE BUSINESS OF THE ASSESSEE RUNS THE RISK OF FOREIGN EXCHANGE FLUCTUATION AND HENCE SUCH LOSSES CAN BE NOTHING BUT BUSINESS LOSSES INEXTRICABLY LINKED TO THE BUSI NESS OF THE ASSESSEE AND SUBMITTED THAT THE LOSS ON FOREX CONTRACTS INCURRED IN THE COURSE OF BUSINESS TO HEDGE THE FOREIGN EXCHANGE EXPOSURES BE ALLOWED AS BUSINESS EXPENDITURE. 50. TO SUPPORT THE ABOVE ARGUMENT, HE RELIED UPON T HE DECISION OF THE HONBLE ITAT OF BANGALORE BENCH IN THE CASE OF M/S. ESSILOR INDIA PRIVATE LIMITED VS. THE DEPUTY COMMISSIONER OF INCOME TAX I N IT(TP)A. NO.190, 176 (B)/2014 FOR THE ASSESSMENT YEAR 2013 2014. 51. HE ALSO SUBMITTED THAT IT IS A BUSINESS DECISIO N TAKEN BY THE ASSESSEE AND TO PROTECT THE INTEREST OF THE BUSINESS, HE HAS ENTERED INTO A FOREX CONTRACT AND SUBSEQUENTLY HE HAD SUFFERED SOME LOSS . THE ASSESSING OFFICER CANNOT SAY THAT IT IS NOT NECESSARY FOR THE ASSESSE E TO ENTER INTO SUCH A CONTRACT. 52. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE STRONGLY SUPPORTED THE ORDER PASSED BY THE AUTHORITIES BELOW . 53. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIALS AVAILABLE ON RECORDS AND HAD GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW. I.T.(TP)A NO.86/CHNY/2019 :- 29 -: 54. THE ASSESSING OFFICER HAS DISALLOWED THE FOREX LOSS OF THE ASSESSEE MAINLY ON THE GROUND THAT THE ASSESSEE NEED NOT ENT ER INTO SUCH A CONTRACT FOR THE NATURE OF THE BUSINESS OF THE ASSESSEE. SECONDLY, THE ASSESSING OFFICER HAD DENIED THE FOR EX LOSS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT FU RNISHED THE RISK ANALYSIS STATEMENT IDENTIFYING THE EXPOSURE AND ALSO HAD NOT FILED THE CONTRACT NOTES AND ANALYSIS STATEMENT SUBMITTED TO THE BANKS WHILE APPLYING FOR THE FOREX CONTRACTS. 55. SO FAR AS THE FIRST OBJECTION RAISED BY THE AO IS CONCERNED, WE FIND THAT THE LINE OF THE BUSINESS OF THE ASSESSEE IS CHARTER -HIRING OF OFFSHORE DRILLING RIGS TO OIL COMPANIES LIKE ONGC, HARDY EXPLORATION, ETC. THE REVENUE IS IN THE NATURE OF CHARTER-HIRE INCOME FROM DRILLING AND PRO DUCTION SERVICES. ALL PAYMENTS UNDER THESE AGREEMENTS FOR PROVISION OF TH E RIGS ON CHARTER-HIRE AND DRILLING SERVICES ARE IN FOREIGN CURRENCY, PREDOMIN ANTLY IN USD. THEREFORE, THE ASSESSEE PLEADS THAT IT HAS TAKEN A BUSINESS DECISION TO PROTECT ITS INTEREST AND HAD ENTERED INTO A FOREX C ONTRACT WITH BANKS AND SUBSEQUENTLY IT HAS CLAIMED LOSS ON THE FOREX CONTR ACTS. 56. IN SO FAR AS THE SECOND OBJECTION RAISED BY THE AO, NON FURNISHING OF DETAILS I.E., INVOICES, RISK ANALYSIS STATEMENT SUB MITTED TO THE BANK ETC. THUS, THE A.O DID NOT ALLOW THE CLAIM FOR WANT OF PARTICU LARS FROM THE ASSESSEE. IN VIEW OF THE ABOVE, WE ARE SETTING ASIDE THE ORDER P ASSED BY THE A.O AND DIRECT THE A.O TO RE-CONSIDER THE ISSUE AFRESH KEEPING IN VIEW OF THE DECISION OF THE I.T.(TP)A NO.86/CHNY/2019 :- 30 -: HON'BLE ITAT OF BANGALORE BENCH IN THE CASE OF M/S. ESSILOR INDIA PVT. LTD. VS. THE DCIT, SUPRA. 57. IN SO FAR AS THE SECOND OBJECTION RAISED BY THE AO, NON FURNISHING OF DETAILS I.E, RISK ANALYSIS STATEMENT SUBMITTED TO T HE BANKS. THEREFORE, IN VIEW OF THE ABOVE, WE ARE SETTING ASIDE THE ORDER PASSE D BY THE ASSESSING OFFICER AND WE DIRECT THE ASSESSING OFFICER TO RE-CONSIDER THE ISSUE DETAILS AND PASS THE ORDER THEREUPON, KEEPING IN VIEW THE DECISION O F THE HONBLE ITAT OF BANGALORE BENCH IN THE CASE OF M/S. ESSILOR INDIA P RIVATE LIMITED VS. THE DEPUTY COMMISSIONER OF INCOME TAX (SUPRA). THUS THE GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 58. THE EIGHT GROUND OF APPEAL RELATING TO DISALLOWANCE OF EXPENSES RELATES TO EARNING EXEMPT INCOME U/S.14A R.W.R 8D: FACTS ARE IN BRIEF THAT IN THE ASSESSMENT ORDER, T HE ASSESSING OFFICER HAS NOTED THAT AN AMOUNT OF RS.13,82,34,191/- AS DI VIDEND FROM MUTUAL FUNDS / SHARES DURING THE YEAR AND CLAIMED THE SAME AS EXEM PT U/S.10(34) OF THE INCOME TAX ACT, 1961. AS PER THE PROVISIONS OF SEC TION 14A OF THE ACT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL I NCOME. THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO CLARIFY AS TO WHY THE DISALLOWANCE SHOULD NOT BE MADE U/S.14A R.W.RULE 8D. THE ASSESSEE REPL IED THAT THEY HAD NOT INCURRED ANY EXPENDITURE IN CONNECTION WITH EARNING EXEMPT INCOME AND THAT THE DISALLOWANCE U/S.14A OF THE ACT IS NOT CALLED F OR. THE ASSESSING OFFICER I.T.(TP)A NO.86/CHNY/2019 :- 31 -: AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE H AS NOTED THAT THE ASSESSEE HAS INCURRED AN AMOUNT OF RS.93.01 CRORES AS FINANC E COST ON ITS BORROWED CAPITAL DURING THE YEAR. THOUGH THE ASSESSEE HAS C LAIMED THAT SUCH BORROWED FUNDS WERE NOT UTILIZED FOR MAKING INVESTMENTS, IT COULD NOT CLEARLY ESTABLISH THE SAME. FUNDS FOR A COMPANY COME IN A COMMON KIT TY AND IT COMPRISES OF BORROWED FUNDS, SHARE CAPITAL AND RETAINING EARNING S (RESERVES & SURPLUS). THEREFORE, TO ARGUE THAT NO PORTION OF THE INTEREST PAID RELATES TO INVESTMENT IS NOT VALID. 59. THE ASSESSING OFFICER FURTHER NOTED THAT THE AS SESSEE CANNOT EARN DIVIDEND INCOME WITHOUT THE EXISTENCE OF MANAGEMENT . THE ASSESSEE MUST HAVE BEEN INCURRED ADMINISTRATIVE EXPENSES AND WITH OUT INCURRING THE EXPENSES, IT IS NOT POSSIBLE TO EARN DIVIDEND INCOM E AND ACCORDINGLY THE ASSESSING OFFICER HAS INVOKED SECTION 14A R.W.R-8D AND WORKED OUT AN AMOUNT TO RS.5,35,925/-, I.E. 0.5% OF THE AVERAGE I NVESTMENTS AS THE EXPENSES INCURRED BY THE ASSESSEE. ACCORDINGLY, TH E SAME IS BROUGHT TO TAX. 60. ON APPEAL, THE DISPUTE RESOLUTION PANEL HAS MOD IFIED THE ORDER. THE DRP HAS DISALLOWED AN AMOUNT OF RS.4,27,934/- U/S.1 4A R.W.R-8D OF THE ACT AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE AND FURTHER AS PER THE SECTION 115JB SUB-SECTION 2, EXPLANATION 1 CLAUSE ( F), THE RELEVANCE OF EXPENSES EARNING EXEMPT INCOME OF RS.4,73,075/- IS ADDED BACK TO THE BOOKS OF THE ASSESSEE. I.T.(TP)A NO.86/CHNY/2019 :- 32 -: 61. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT SECTION 14A OF THE ACT IS A PROVISION WITH FICTION DISALLOWING THE DEEMED EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME VIZ. DIVIDEND INCOME U/S.10 OF THE ACT AND SECTION 115JB OF THE ACT IS ALSO A PROVISION WITH F ICTION FOR PAYMENT OF TAX IN RESPECT OF DEEMED INCOME AND SUBMITTED THAT THE PRO FIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT ANOTHER PROVISION WITH FIC TION CANNOT BE SUPERIMPOSED AND THE QUESTION OF INCREASING THE BO OK PROFIT DUE TO DISALLOWANCE U/S.14A OF THE ACT WILL NOT ARISE DUE TO THE FACT THAT ANY NOTIONAL ADJUSTMENT IN THE BOOK PROFIT IS NOT PERMISSIBLE. TO SUPPORT HIS ARGUMENT HE RELIED ON THE DECISION OF THE DELHI SPECIAL BENCH I N THE CASE OF VIREET INVESTMENTS, 82 TAXMANN.COM 415 62. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE AUTHORITIES BELOW. 63. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE CORDS AND HAD GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 64. THE CASE OF THE ASSESSEE IS THAT HE HAS NOT INC URRED ANY EXPENSES FOR THE EARNINGS OF THE DIVIDEND INCOME. HOWEVER, THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH BEFORE THE ASSESSING OFFICER BECA USE THE BORROWED FUNDS ARE NOT UTILIZED FOR THE PURPOSE OF INVESTMENT. THEREF ORE, THE ASSESSING OFFICER HAS INVOKED SECTION 14A R.W.R 8D OF THE INCOME TAX ACT, 1961. HE HAS MADE A DISALLOWANCE OF RS.5,35,925/- WHICH IS 0.5% OF TH E AVERAGE INVESTMENTS. I.T.(TP)A NO.86/CHNY/2019 :- 33 -: 65. ON APPEAL, THE DISPUTE RESOLUTION PANEL HAS MOD IFIED THE ORDER PASSED BY THE ASSESSING OFFICER AND ALSO MADE ONE MORE ADD ITION U/S.115 JB OF THE ACT AMOUNTING TO RS.4,73,075/- BUT ACCORDING TO THE ASSESSEE WHICH IS NOT CORRECT AS NO ADDITION CAN BE MADE IN SECTION 115 J B OF THE INCOME TAX ACT, 1961, WHICH IS CONTRARY TO THE DECISION OF THE DELH I SPECIAL BENCH IN THE CASE OF VIREET INVESTMENTS, 82 TAXMANN.COM 415. 66. IT IS ALSO THE CASE OF THE ASSESSEE THAT NO DIS ALLOWANCE U/S.14A HAS TO BE MADE BECAUSE THE ASSESSEE IS HAVING SUFFICIENT O WN FUNDS. HOWEVER, AS FOR THE ASSESSING OFFICER, THE ASSESSEE IS NOT ABLE TO SUBMIT THE DETAILS AND SUBSTANTIATE THAT THE BORROWED FUNDS ARE NOT UTILIZ ED FOR THE PURPOSE OF THE BUSINESS. 67. THUS, WE SET ASIDE THE ORDER PASSED BY THE ASSE SSING OFFICER AND REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE AFRESH, KEEPING IN VIEW THE DECISION OF THE DELHI BENCH SPECIAL OF THE TRIBUNAL (SUPRA), PASSED ORDER THEREUPON. THUS THE GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 68. THE NINTH GROUND OF APPEAL RELATING TO DISALLOWANCE OF LONG TERM CAPITAL LOSS : FACTS ARE IN BRIEF THAT IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS NOTED THAT DURING THE CURRENT YEAR THE ASSESSEE HAS CLAIMED LONG TERM CAPITAL LOSS ON SALE OF INVESTMENTS IN THE EQUITY S HARES OF M/S. ABAN HOLDINGS I.T.(TP)A NO.86/CHNY/2019 :- 34 -: PRIVATE LIMITED, SINGAPORE WHO IS WHOLLY OWNED FORE IGN SUBSIDIARY OF THE ASSESSEE (OR IN OTHER WORDS BUY-BACK OF SHARES BY T HE WHOLLY OWNED FOREIGN SUBSIDIARY). THE DETAILS OF THE SHARES SOLD, SUCH AS THE NUMBER OF SHARES SOLD, SALE CONSIDERATION RECEIVED, RATE AT WHICH IT IS SO LD, COST OF ACQUISITION, INDEXED COST OF ACQUISITION, ETC., IN THE MONTH OF JUNE AND JULY 2014 RESPECTIVELY. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PORTION OF TH E SAME IS REPRODUCED FROM THE ASSESSMENT ORDER AS UNDER: EQUITY SHARES OF ABAN SINGAPORE PRIVATE LIMITED : LOSS ON SALE OF INVESTMENTS - ABAN HOLDINGS PRIVAT E LIMITED USD SALE CONSIDERATION OF INVESTMENTS SOLD ON VARIOUS DATES OF JUNE IN F.Y. 2014 2015 84,61,538 EQUITY SHARES @ USD 0.78 EACH 6,600,000 LESS : COST OF ACQUISITION COST OF INFLATION INDEX 84,61,538 SHARES @ USD 1.00 FY: 2008-09 - 582 14,887,655 INDEX COST OF ACQUISITION FY : 2014 15 - 1024 LOSS ON SALE OF INVESTMENTS TO BE CARRIED FORWARD (82,87,6565) INR CONVERSION @ TT BUYING SBI CARD RATE AS ON MAY 21 ST @ 58,75 (RS.48,68,99,749) /..(A) SALE CONSIDERATION OF INVESTMENTS SOLD ON VARIOUS DATES OF JULY IN F.Y. 2014 2015 1,02,56,410 EQUITY SHARES @ USD 0.78 EACH 8,00,000 LESS : COST OF ACQUISITION COST OF INFLATION INDEX 1,02,56410 SHARES @ USD 1.00 FY: 2008-09 - 58 2 18,045,643 INDEX COST OF ACQUISITION FY : 2014 15 - 1024 LOSS ON SALE OF INVESTMENTS TO BE CARRIED FORWARD (10,045,643) INR CONVERSION @ TT BUYING SBI CARD RATE AS ON JUNE 30TJ @ 58,75 (RS.59,99,22,592) /..(B) TOTAL LONG TERM CAPITAL LOSS CLAIMED ON LOSS ON SAL E OF INVESTMENTS ON SALE OF EQUITY SHARES OF ABAN HOLDINGS PRIVATE LIMITED IS (A) + (B) = (RS.48,68,99,749 + RS.59,92,22,592) =RS.108,61,22,341/- 12.2 IT IS ALSO TO BE NOTED THAT DURING THE CURREN T YEAR THE ASSESSEE HAS REINVESTED IN THE SHARES OF THE SAME COMPANY IN THE MONTH OF JULY SOON AFTER TH E SALE OF INVESTMENTS. 12.3 THE DATES OF SALE OF SHARES OF M/S. ABAN HOLD INGS PRIVATE LIMITED, SINGAPORE IN THE FY. 2014 2015 RELEVANT TO THE AY.2015-2016 AND SUBSEQUENT IN VESTMENT IN THE SHARES OF THE SAME COMPANY ARE AS UNDER: SALE OF INVESTMENT IN ABAN HOLDINGS PRIVATE LTD OR BUYBACK OF SHARES OF ABAN HOLDINGS PRIVATE LIMITED RATE AT WHICH SOLD AMOUNT OF SALE I.T.(TP)A NO.86/CHNY/2019 :- 35 -: WORKINGS FOR THE FY 2014-15 DATE NO. OF SHARE SOLD USD USD 13.06.2014 12,82,051 0.7800 10,00,000 19.06.2014 5,12,821 0.7800 4,00,000 25.06.2014 6,41,026 0.7800 5,00,000 30.06.2014 60,25,641 0.7800 47,00,000 01.07.2014 1,02,56,410 0.7800 80,00,000 TOTAL 1,87,17,949 1,46,00,000 FURTHER INVESTMENT IN THE SHARES OF ABAN HOLDINGS P RIVATE LIMITED FOR THE FY.2014 2015 DATE OF INVESTMENT EXPLANATION NO. OF SHARES AMOUNT OF USD 14.07.2014 EQUITY INVESTMENT IN WHOLLY OWNED SUBSIDIARY 135,13,513 100,00,000 14.07.2014 EQUITY INVESTMENT IN WHOLLY OWNED SUBSIDIARY 67,56,757 50,00,000 14.07.2014 EQUITY INVESTMENT IN WHOLLY OWNED SUBSIDIARY 67,56,757 50,00,000 14.07.2014 EQUITY INVESTMENT IN WHOLLY OWNED SUBSIDIARY 67,56,757 50,00,000 TOTAL 337,83,783 250,00,000 69. FROM THE ABOVE, THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS SOLD TRANCHE OF SHARES IN THE WHOLLY OWNED SUBSIDIA RY M/S. ABAN HOLDINGS PRIVATE LIMITED FROM 13.06.2014 TO 01.07.2014 FOR A SUM OF USD 146,00,000 INCURRING HUGE LONG TERM CAPITAL LOSS, ONLY THIRTEE N DAYS LATER A SUM OF USD 250,00,000 WAS INVESTED IN THE SAME SHARES BY THE A SSESSEE. SINCE THIS IS AGAINST A COMMON PRUDENCE, THE ASSESSEE WAS ASKED T O EXPLAIN THE TRANSACTION ALONG WITH COPIES OF BUYBACK OFFER, COP IES OF VALUATION REPORTS, REASON FOR SALE AND SUBSEQUENT PURCHASE OF SHARES O F THE WHOLLY OWNED SUBSIDIARY SUPPORTED BY MINUTES OF MEETING AND COPI ES OF VALID DOCUMENTARY EVIDENCES ALONG WITH ALL RELEVANT DETAILS. THE ASS ESSEE HAS SUBMITTED AS UNDER: OUR WHOLLY OWNED SUBSIDIARY HAD COME OUT WITH AN OFF ER FOR BUYBACK OF ITS EQUITY SHARES IN OCTOBER 2013. COMPANY HAD PLANNED FOR REDEEMING ITS HIGH COST BANK DEBTS AND ACCEPTED THE BUYBACK OFFER PU RSUANT TO THE BOARD APPROVAL ON 13 TH NOVEMBER, 2013. THE BUYBACK WAS COMPLETED AND THE COMPANY REDEEMED ITS HIGH COST DEBTS DURING 2013-2014 AND 2014 2015. LATER DURING THE YEAR WHEN COMPANY RAISED EQUITY THRO UGH QUALIFIED INSTITUTIONAL PLACEMENT, IT WAS THOUGHT APPROPRIATE TO CAPITALIZE OUR WHOLLY OWNED FOREIGN SUBSIDIARY, BECAUSE OUR WHOLLY OWNED FO REIGN SUBSIDIARY WAS THE GROWTH ENGINE OF THE GROUP. THE INVESTMENT WA S APPROVED BY THE BOARD OF DIRECTORS. I.T.(TP)A NO.86/CHNY/2019 :- 36 -: 70. THE ASSESSING OFFICER AFTER CONSIDERING THE EXP LANATION OF THE ASSESSEE HAS NOTED THAT THE ASSESSEE HAS NOT GIVEN BACKGROUN D IN WHICH THE BOARD OF DIRECTORS HAVE TAKEN A DECISION. NO EVIDENCE IN RE SPECT OF THE MINUTES OF THE MEETING AND NO EXTRACTS ON THE MINUTES OF THE MEETI NG, WHEREIN THE DECISION IN RESPECT OF THE SALE OF INVESTMENT WAS FURNISHED BY THE ASSESSEE. HOWEVER, THE ASSESSEE HAS NOT EXPLAINED SATISFACTORILY WITH ALL SUPPORTIVE EVIDENCES AS TO WHY SUCH DECISION HAS BEEN TAKEN. 71. THE ASSESSING OFFICER HAS ALSO NOTED THAT THE A SSESSEE HAS NOT EXPLAINED AS TO WHY SUCH SALE OF SHARES WAS SUCCEED ED BY REINVESTMENT IN THE SAME SHARES AND THE ASSESSEE HAS ALSO NOT FURNISHED ANY DETAILS IN RESPECT OF THE HIGH COST BANK DEBTS BEING REPAID OR WHETHER AN Y RECONSTITUTION OF DEBTS WERE MADE. THE ASSESSING OFFICER HAS AGAIN ASKED THE ASSESSEE AS TO WHY SUCH LONG TERM CAPITAL GAIN SHOULD NOT BE DISALLOWE D IN THE ABSENCE OF THE LEGITIMATE UNDERTAKING FOR SUCH A TRANSACTION AND H E IS OF THE OPINION THAT THE ENTIRE TRANSACTION WAS AN ARRANGEMENT BETWEEN THE A SSOCIATE ENTITIES. AGAIN THE ASSESSEE HAS MADE A DETAILED SUBMISSION BEFORE THE ASSESSING OFFICER WHICH IS REPRODUCED AS UNDER: WE WOULD LIKE TO SUBMIT THAT DURING THE YEAR UNDER CONSIDERATION, M/S ABAN HOLDING PRIVATE LIMITED HAS BOUGHT BACK THE SH ARES FROM ABAN OFFSHORE LIMITED AND ACCORDINGLY, OUR COMPANY SOLD 7, SI 7 948 SHARES AT THE RATE OF $0.78 PER SHARE, THE SHARE PRICE IS ARR IVED AS PER RULE 1JUA OF INCOME TAX RULES, 1962. THE COMPANY HAS INCURRED LONG TERM CAPITAL LOSS OF $1,83,33,297 EQUIVALENT TO INR 1,08 ,61,22,342/- AFTER CLAIMING INDEX COST OF ACQUISITION. A DETAILED WORK ING OF LONG TERM CAPITAL LOSS HAS BEEN ENCLOSED HEREWITH FOR YOUR KI ND CONSIDERATION. SINCE, THE INVESTMENT IN SHARES WAS HELD FOR MORE T HAN 2 YEARS AND THE SAME WERE SOLD AT THE VALUE DETERMINED AS PER RULE 11 UA, OUR COMPANY I.T.(TP)A NO.86/CHNY/2019 :- 37 -: HAS RIGHTLY CLAIMED THE LONG TERM CAPITAL LOSS ON S ALE OF SUCH SHARES AND SAME MAY KINDLY BE ALLOWED TO CARRY FORWARD TO FUTU RE YEARS. WE WOULD LIKE TO SUBMIT THAT THE PART OF THE ABOVE TRANSACTION HAD TAKEN PLACE IN FY 2013-14 RELEVANT TO AY-2014-15 AND A TO TAL CAPITAL LOSS ON SALE OF SHARES OF MIS ABAN HOLDING PRIVATE LIMITED WAS ARRIVED AT 112,66,71,005/-. DURING THE COURSE OF SCRUTINY PROC EEDINGS, QUERIES WAS RAISED REGARDING THE LONG TERM CAPITAL LOSS CLAIMED BY OUR COMPANY AND AFTER OUR REPLY, THE SAME WAS ACE PRIVATE BY TH E ASSESSING OFFICER FOR A Y2014-15. SINCE THE LOSS IN CURRENT YEAR IN ON TH E SAME TRANSACTION, WE REQUEST YOU TO KINDLY ACCEPT THE LONG TERM CAPITAL LOSS CLAIMED BY OUR COMPANY. HEREIN, IT IS ONCE AGAIN SUBMITTED BEFORE YOU KIND OFFICE THAT THE DURING THE FY 2013-1 4, THE ASSESSEE COMPANY WAS GOING THR OUGH LIQUIDITY CRISES AND THEREFORE OUR COMPANY REQUESTED TO BUY B ACK AHPL SHARES, AHPL AGREED TO BUY BACK ITS SHARES FROM OUR COMPANY (A BAN OFFSHORE LIMITED). THE DECISION TO BUY BACK OF SHARES WAS FI NALIZED DURING FY2013-14 WHEN OUR COMPANY WAS FACING LIQUIDITY CRI SES. HOWEVER, THE BUYBACK TRANSACTIONS TOOK PLACE IN 2PHASE OF INSTAL LMENTS I.E. ONCE IN FY- 2013-14ANDANOTHER IN FURTHER, DURING THE YEAR UNDER CONSIDERATION, IN JULY 2014, OUR COMPANY RECEIVED INVESTMENT FROM QUA LIFIED INSTITUTIONAL BUYER (QIB,) WHICH HAS, A POSITIVE IMPACT OF THE LI QUIDITY. SINCE AHPL IS THE GROWTH ENGINE OF THE COMPANY, OUR COMPANY INVES TED IN THE SHARES OF AHPL. THUS, THE DECISION OF BUY BACK WAS TAKEN IN FY 2013 -14 FOR THE REASONS OF LIQUIDITY AND FUNDS AVAILABILITY AND THEREAFTER THE BUY BACK TRANSACTION WAS COMPLETED IN TWO PHASES OF INSTALLMENT I. E, FI RST TRANSACTION IN FY20] 3-14 AND THE SECOND IN THE FY2014-15. 72. THE ASSESSING OFFICER HAD CONSIDERED THE EXPLAN ATION OF THE ASSESSEE AND NOTED THAT THE ASSESSEE HAS NOT OFFERED ANY EXP LANATION AS TO WHY SUCH TRANSACTION WAS UNDERTAKEN WHICH HAS RESULTED IN HU GE CLAIM ON LONG TERM CAPITAL LOSS. THE ASSESSEE HAS FURTHER NOTED THAT DURING THE COURSE OF SCRUTINY PROCEEDINGS, QUERIES WERE RAISED ACCORDING TO THE L ONG TERM CAPITAL LOSS CLAIMED BY THE COMPANY AND THE SAME WAS ACCEPTED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2014- 2015. 73. AT THIS POINT, THE RELEVANT NOTE THAT DURING TH E ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2014 2015, THE ASSESSEE H AS NOT BROUGHT TO THE NOTICE OF THE ASSESSING AUTHORITY THAT THERE WAS A REINVESTMENT MADE BY THE I.T.(TP)A NO.86/CHNY/2019 :- 38 -: ASSESSEE IN THE SAME STATUS OF SHARES DURING THE FI NANCIAL YEAR 2014 2015 RELEVANT TO THE ASSESSMENT YEAR 2015 2016. THIS MATERIAL FACT CHANGES THE COLOUR OF THE TRANSACTION IN AS MUCH AS THE INTENTI ON OF THE ASSESSEE IN BACKING THE ARTIFICIAL LONG TERM CAPITAL LOSS BECOM ES ABUNDANTLY CLEAR. THEREFORE, THE COMPARISON CANNOT BE DRAWN BETWEEN B OTH THE ASSESSMENT YEARS BECAUSE OF THE FACTS PERTAINING TO BOTH THE Y EARS THAT ARE DIFFERENT. 74. IN SO FAR AS THE STATEMENT MADE BY THE ASSESSEE IS THAT THERE WAS A LIQUIDITY CRISIS FACED BY THE ASSESSEE FOR THAT THE ASSESSING OFFICER HAD NOTED THAT NO MATERIAL IS PLACED THAT SHOWS THAT THE ASSE SSEE IS FACING FINANCIAL CRISIS. ACCORDINGLY, THE ASSESSING OFFICER CAME TO A CONCLUSION THAT THE ASSESSEE HAS UNDERTAKEN THE TRANSACTION THAT IS BUY ING AND SELLING OF SHARES OF THE ASSESSEES WHOLLY OWNED SUBSIDIARY WITHOUT A NY VALID REASONS AND THE SAME IS NOT SUBSTANTIATED BY THE ASSESSEE BY PLACIN G RELEVANT MATERIALS AND NOT DISCLOSED THE REAL REASON BEHIND UNDERTAKING SU CH TRANSACTIONS. ACCORDINGLY, THE LONG TERM LOSS CLAIMED BY THE ASSE SSEE IS DISALLOWED. 75. THE ASSESSING OFFICER ALSO RELIED UPON THE DEC ISION OF THE MADRAS HIGH COURT IN THE CASE OF M/S. PREMIER SYNTHETIC INDUSTR IES VS. INCOME TAX OFFICER, WARD II (7), COIMBATORE [2012] 22 TAXMANN.COM 333 (MAD.). KEEPING IN VIEW OF THE DIRECTION GIVEN BY THE DRP. 76. THE LD. COUNSEL FOR THE ASSESSEE HAS ARGUED TH AT THE ASSESSEE HAS TAKEN A BUSINESS DECISION OF BUY AND SALE THE SHARE S THEREFORE, THE AO CANNOT STEP INTO THE SHOWS OF THE ASSESSEE. FURTHER HE RE LIED ON THE DECISION OF I.T.(TP)A NO.86/CHNY/2019 :- 39 -: HONBLE SUPREME COURT IN THE CASE OF S.A BUILDERS V S. CIT 288 ITR 01 (SC). HE FURTHER SUBMITTED THAT THE CAPITAL LOSS ON ACCOU NT OF SALE OF SHARES WAS NOT ADJUSTED AGAINST ANY CAPITAL GAIN EVEN TILL DATE. ACCORDINGLY, NO TAX BENEFIT WAS LEVIED THEREFORE, OBTAINED BY THE ASSESSEE COMP ANY AFTER THE CAPITAL LOSS WAS BOOKED BY IT. TO SUPPORT HIS ARGUMENT, HE RELI ED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GIL LETTE DIVERSIFIED OPERATIONS (P.) LTD. [2010] 324 ITR 226 (DEL). HE FURTHER SUB MITTED THAT PART OF THE TRANSACTION HAD TAKEN PLACE AT FOR THE FINANCIAL YE AR 2013-14 RELEVANT TO THE AY 2014-15 A TOTAL CAPITAL LOSS ON SALE OF SHARES OF M /S. ABAN HOLDINGS PVT. LTD. ACCEPTED BY AO SUBSEQUENT TO THE YEAR 2015-16 LOSS WAS NOT ACCEPTED WHICH IS NOT CORRECT. HE FURTHER SUBMITTED THAT SALE PRICE IS IN ACCORDA NCE WITH RULE 11(UA) OF THE RULES AND SUBMITTED THAT LONG TERM CAPITAL L OSS SUFFERED BY THE ASSESSEE HAS TO BE ALLOWED. 77. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE STRONGLY SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER AND ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PREMIER SYNTHETIC INDUSTRIES VS. INCOME-TAX OFFICER, WARD II (7), COIMBATORE REPORTED IN [2012] 22 TAXMANN.COM 333 (MAD.). 78. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH T HE ORDERS OF THE AUTHORITIES BELOW. I.T.(TP)A NO.86/CHNY/2019 :- 40 -: 79. THE ASSESSEE COMPANY HAS CLAIMED LONG TERM CAPI TAL LOSS ON SALE OF INVESTMENTS IN THE EQUITY SHARES OF M/S. ABAN HOLDI NGS PVT. LTD., SINGAPORE, WHO IS A WHOLLY OWNED FOREIGN SUBSIDIARY OF THE ASS ESSEE-COMPANY (OR IN OTHER WORDS BOUGHT BY BACK OF SHARES BY THE WHOLLY OWNED FOREIGN SUBSIDY). ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HA S NOT PLACED THE MINUTES OF THE MEETING AND HE ALSO NOTED THAT THE SAME SHAR ES WERE AGAIN INVESTED BY THE ASSESSEE IN M/S. ABAN HOLDINGS PRIVATE LIMITED, SINGAPORE. THE ASSESSING OFFICER HAS ASKED THE ASSESSEE AS TO WHAT IS THE REASON FOR SALE WAS AND WHAT IS THE REASON FOR SUBSEQUENT PURCHASES . THE ASSESSEE HAS EXPLAINED THAT THE BOARD HAS TAKEN THE DECISION ON 13 TH NOVEMBER, 2013 TO REDEEM ITS HIGH COST BANK DEBTS. ACCORDING TO THE ASSESSING OFFICER, THERE IS NO REASON FOR BUYING AND SELLING THE SHARES. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS FURTHER NOTED THAT THE MINUTE S OF THE MEETING WERE NOT PLACED BEFORE THE ASSESSING OFFICER DURING THE COUR SE OF THE ASSESSMENT PROCEEDINGS. SO FAR AS ASSESSMENT YEAR 2014 201 5 IS CONCERNED, THE ASSESSEE HAS NOT BROUGHT ALL THE DETAILS BEFORE THE ASSESSING OFFICER. THEREFORE, THE SAME CANNOT BE FOLLOWED FOR THE YEAR UNDER CONSIDERATION. 80. WE FIND THAT THE BOARD HAS TAKEN A DECISION TO BUY BACK THE ENTIRE SHARES OF M/S. ABAN HOLDINGS PRIVATE LIMITED, SINGA PORE, ASSESSEES WHOLLY OWNED SUBSIDIARY COMPANY AND THAT NO THIRD PARTY IN INVOLVED. THE TRANSACTION IS BETWEEN THE ASSESSEES OWN SISTER CONCERN AND TH E ASSESSEE. THE BOARD HAS TAKEN A DECISION ON 13 TH NOVEMBER, 2013. AS REGARDS TO THE ENTIRE BUYBACK OF THE SHARES, THE ASSESSING OFFICER FOR TH E ASSESSMENT YEAR 2014 I.T.(TP)A NO.86/CHNY/2019 :- 41 -: 2015, IN THE SCRUTINY PROCEEDINGS ALLOWED THE CAPIT AL LOSS OF THE ASSESSEE. IN THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER SAYS THAT THE ASSESSMENT YEAR 2014 2015 IS DIFFERENT FROM THE ASSESSMENT Y EAR 2015 2016. THE BOARD HAS TAKEN A DECISION WITH REGARD TO THE BUYBA CK OF THE SHARES. ONE TRANSACTION HAS ALREADY BEEN COMPLETED FOR THE ASSE SSMENT YEAR 2014 2015 AND THE SAME IS ALLOWED BY THE ASSESSING OFFICER. THE REMAINING PART OF THE TRANSACTION IS COMPLETED DURING THE SUBSEQUENT YEAR AND THE ASSESSING OFFICER HAS DOUBTED THE SAME ON THE GROUND THAT THE MINUTES OF THE MEETING HAS NOT BEEN PLACED BEFORE THE ASSESSING OFFICER AND ALSO T HE ASSESSEE HAS SOLD THE SAME SHARES TO M/S. ABAN HOLDINGS PRIVATE LIMITED, SINGAPORE. WE FIND THAT THE REASON GIVEN BY THE AO IN OUR OPINION IS JUSTIF IED FOR THE REASON THAT THE AO HAS GIVEN DIFFERENT TREATMENT FOR THE SAME SHARES F OR THE YEAR 2014-15 AND 2015-16, THE AO IS DISALLOWED THE CAPITAL LOSS CLAI MED BY THE ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF PREMIER SYNTHETIC INDUSTRIES VS. INCOME-TAX OFFICER , WARD II (7), COIMBATORE (SUPRA). EVEN THE HONBLE DISPUTE RESOLUTION PANEL [DRP] HAS TAKEN SUPPORT FROM THE SAME DECISION. 81. IN THE CASE OF THE PREMIER SYNTHETIC INDUSTRI ES VS. ITO, WARD-II(7), COIMBATORE, THE HON'BLE MADRAS HIGH COURT HAS CONSI DERED THAT WHEN THERE WERE NO MATERIALS TO SHOW THAT FUNDS FOR PURCHASE O F SHARES ACTUALLY WENT FROM ASSESSEE, THE ENTIRE TRANSACTIONS WERE LACKING GENU INENESS. UNDER THESE FACTS, THE HON'BLE MADRAS HIGH COURT HAS HELD THAT THE LOSS CANNOT BE ALLOWED EITHER AS A REVENUE LOSS OR A CAPITAL LOSS. THE ABO VE DECISION IS NOT APPLICABLE I.T.(TP)A NO.86/CHNY/2019 :- 42 -: TO THE FACTS OF THE CASE. AS PER THE NOTE FILED BY THE ASSESSEE IN THE PRESENT CASE, THE ASSESSEE HAS MADE INVESTMENT IN M/S. ABAN HOLDINGS PRIVATE LIMITED, SINGAPORE FOR THE FINANCIAL YEAR 2008 20 09 DATED 27.09.2012, AGM HELD BY M/S. ABAN OFFSHORE PRIVATE LIMITED TO BUYBA CK OF SHARES ON 30.10.2013, BUYBACK OF SHARES OF THE FIRST HALF ON 01.02.2013 AND BUYBACK OF SHARES OF THE SECOND HALF WAS ON JUNE 2014. THE ABO VE FACTS WERE NEITHER PROPERLY EXAMINED BY THE DRP NOR BY THE ASSESSING O FFICER. 82. IN VIEW OF THE ABOVE BY CONSIDERING THE FACTS A ND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THE ORDER PASSED B Y DRP HAS TO BE SET ASIDE AND THE ISSUE HAS TO BE REMITTED BACK TO THE A.O. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY DRP AND REMIT THE MATTER BACK T O THE AO TO DECIDE THE ISSUE AFRESH KEEPING IN VIEW OF THE OBSERVATIONS M ADE BY US. THUS THE GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 83. THE TENTH GROUND OF APPEAL RELATING TO DISALLOWANCE OF PROFESSIONAL AND CONSULTANCY SERVICES: FACTS ARE IN BRIEF THAT IN THE ASSESSMENT ORDER, TH E ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS .1,89,00,000/- UNDER THE HEAD PROFESSIONAL AND CONSULTANCY SERVICES WHICH WA S PAID TO M/S. EMKAY GLOBAL FINANCIAL SERVICES FOR RECEIPT OF SERVICES F OR BUSINESS STRATEGY. THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO FURNISH THE NATURE OF SERVICES I.T.(TP)A NO.86/CHNY/2019 :- 43 -: RENDERED ALONG WITH DOCUMENTARY EVIDENCES. THE ASS ESSEE HAS SUBMITTED AS UNDER: THE PAYMENT IS MADE TOWARDS FEES FOR ADVISING ON I SSUES RELATING TO BUSINESS STRATEGY. IT IS MOST HUMBLY SUBMITTED THAT DURING THE FINANCIAL YEAR 2014 2015, OUR COMPANY WAS GOING THROUGH DIFFICULT BUSINESS PE RIOD THAT HAD TO GO FOR CORPORATE RESTRICTING IN ORDER TO SERVICE THE LIABI LITIES. M/S. EMKAY GLOBAL FINANCIAL SERVICES LIMITED IS A C OMPANY FOUNDED IN THE YEAR 1995 IS PROVIDING FINANCIAL ADVICE IN VARIOUS AREAS AND IS LISTED IN THE MAJOR RECOGNIZED STOCK EXCHANGES OF INDIA INCLUDING BOMBA Y STOCK EXCHANGE. THE COMPANY IS LOCATED IN MUMBAI AND ITS PAN IS AAACE 0 994L. DURING THE YEAR UNDER CONSIDERATION, M/S. EMKAY GLOBAL FINANCIAL SE RVICES LIMITED HA PROVIDED OUR COMPANY CONSULTANCY SERVICES IN RESPECT OF FINA NCIAL RESTRUCTURING OF OUR COMPANY AND ACCORDINGLY HAS RAISED AN INVOICE OF RS .1,89,00,000/- TOWARDS SUCH SERVICES AND ALSO CHARGED SERVICE TAX @ 12.36% OF R S.23,36,040/-. THUS, THE PAYMENT WAS MADE AFTER DEDUCTING THE APPLICABLE TDS . IT IS NOT OUT OF PLACE TO SUBMIT HERE THAT THE ABOV E PAYMENTS ARE REFLECTED IN THE FORM 26AS OF M/S. EMKAY GLOBAL FINANCIAL SERVICES L IMITED AND THE SAME IS OFFERED BY THEM TO INCOME TAX. FURTHER, M/S. EMKAY GLOBAL FINANCIAL LIMITED IS NOT A RELATED PARTY TO M/S. ABAN OFFSHORE LIMITED. THEREFORE, IT IS SUBMITTED THAT THE PAYMENTS MADE T O M/S. EMKAY GLOBAL FINANCIAL SERVICES LIMITED ARE TOWARDS THE BUSINESS REQUIREME NTS OF OUR COMPANY WHICH HELPED US IN RESTRUCTURING THE FINANCIAL STRUCTURE OF THE COMPANY. THEREFORE, THE EXPENDITURE INCURRED TOWARDS BUSINESS EXPEDIENCY AN D THE SAME IS ALLOWABLE U/S.37(1) OF THE INCOME TAX ACT, 1961. 84. THE ASSESSING OFFICER HAS CONSIDERED THE EXPLAN ATION GIVEN BY THE ASSESSEE AND HE HAS NOTED THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS OF THE NATURE OF SERVICES RENDERED BY THE PARTY, M/S. EMKAY GLOBAL FINANCIAL LIMITED TO IDENTIFY AS TO WHETHER THE EXPENDITURE I S WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. HE FURTHER N OTED THAT THE ASSESSEE HAS NOT FILED ANY DETAILS TO PROVE THAT THE EXPENDITURE DOES NOT RELATE TO THE CAPITAL EXPENDITURE. THE ASSESSING OFFICER FURTHER NOTED T HAT THE SERVICES RENDERED BY M/S. EMKAY GLOBAL FINANCIAL LIMITED FOR THE PURP OSE OF FINANCIAL RESTRUCTURING IS DONE FOR THE ASSESSEE COMPANY THER EBY INCURRING A HUGE LONG TERM CAPITAL LOSS WHICH CANNOT BE ALLOWED UNDER THE REASON, AS THE ENTIRE TRANSACTION IS SHAM TRANSACTION. ACCORDINGLY, HE D ISALLOWED THE SAME ON APPEAL. I.T.(TP)A NO.86/CHNY/2019 :- 44 -: 85. THE ASSESSEE HAS RAISED OBJECTION AGAINST THE D RAFT ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER BEFORE THE HONBLE DRP. THE HONBLE DRP HAD CONFIRMED THE DRAFT ASSESSMENT ORDER AND ALSO R ELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA CEME NTS LIMITED VS. THE COMMISSIONER OF INCOME TAX REPORTED IN [1966] 60 IT R 52. 86. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS IS ENGAGED IN THE SERVICES OF M/S. EMK AY GLOBAL FINANCIAL SERVICES LIMITED TOWARDS THE BUSINESS REQUIREMENTS OF THE ASSESSEE COMPANY AND THEREFORE THE EXPENSES INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS REQUIREMENTS OF THE ASSESSEE COMPANY AND T HEREFORE THE EXPENSES INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINES S AND IS ALLOWABLE U/S.37(1) OF THE INCOME TAX ACT, 1961. 87. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUB MITTED THAT THE ASSESSEE HAS NOT FILED ANY DETAILS AS TO WHAT IS TH E NATURE OF SERVICES RENDERED BY M/S. EMKAY GLOBAL FINANCIAL LIMITED AND HE STRONGLY PLACED RELIANCE ON THE AUTHORITIES BELOW. 88. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS E OF BUSINESS IS ALLOWABLE U/S.37 OF THE INCOME TAX ACT, 1961 AND SUBMITTED TH AT THE ASSESSEE HAS RECEIVED CONSULTANCY SERVICES FROM M/S. EMKAY GLOBA L FINANCIAL LIMITED FOR FINANCIAL RESTRUCTURING. IT IS FOR THE PURPOSE TO RUN THE BUSINESS OF THE ASSESSEE AND THEREFORE THE SAME CANNOT BE DISALLOWE D. I.T.(TP)A NO.86/CHNY/2019 :- 45 -: HE FURTHER SUBMITTED THAT THE ASSESSEE HAS DEDUCTE D SERVICE TAX AND ALSO THE TAX DEDUCTED AT SOURCE [TDS] IN RESPECT OF THE PAYMENT MADE TO EMKAY GLOBAL FINANCIAL LIMITED. HE ALSO SUBMITTED THAT THE ASSESSEE HAS TAKEN A DECISION IN RESPECT OF HIS BUSINESS AND A C ONSULTANT IS ENGAGED FOR WHICH HE HAD PAID CONSULTANCY CHARGES FOR THE SERVI CES AND THEREFORE THE ASSESSING OFFICER CANNOT SIT UPON THE BUSINESS DECI SION TAKEN BY THE ASSESSEE AND DISALLOW THE EXPENDITURE WHICH IS INCO RRECT. TO SUPPORT HIS ARGUMENTS, HE RELIED UPON THE DECISION IN THE CASE OF M/S. S.A. BUILDERS LIMITED VS. COMMISSIONER OF INCOME TAX (APPEALS) RE PORTED IN 288 ITR 1/158 TAXMANN 74 (SC); ASSISTANT COMMISSIONER OF INCOME T AX VS. DURGAPUR TEA COMPANY [2003] 131 TAXMANN 39; PRINCIPAL COMMISSION ER OF INCOME TAX VS. BASTI SUGAR MILLS COMPANY LIMITED REPORTED IN [2018 ] 98 TAXMANN.COM 401 (DELHI). HE ALSO RELIED UPON THE DECISIONI IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SOUTH INDIA SUGARS LIMITED REPORTED IN [2005] 275 ITR 491 (MAD.) 89. WE HAVE HEARD BOTH THE SIDES AND PERUSED ALL TH E RECORDS AND HAD GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. 90. THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE I S ENGAGED WITH M/S. EMKAY GLOBAL FINANCIAL LIMITED FOR A BUSINESS STRAT EGY AND ALSO BUSINESS REQUIREMENTS OF THE COMPANY HAD PAID AN AMOUNT OF R S.1,89,00,000/- AND THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO SUBMIT THE DETAILS AND HE HAS SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSE SSEE IS FOR THE PURPOSE OF BUSINESS. BEFORE THE AO THE ASSESSEE HAS SUBMITTED THAT THE EXPENDITURE I.T.(TP)A NO.86/CHNY/2019 :- 46 -: INCURRED TOWARDS ASSESSEES BUSINESS PURPOSE TDS WA S DEDUCTED ON THE PAYMENT AND THE EXPENDITURE ALLOWABLE U/S. 37(1) OF THE ACT. HOWEVER, THE AO NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND DI SALLOWED ENTIRE EXPENDITURE BY FOLLOWING THE DIRECTIONS OF THE DRP. 91. IT IS A FACT THAT THE ASSESSEE HAS ENGAGED SERV ICES OF M/S. EMKAY GLOBAL FINANCIAL LIMITED TOWARDS CONSULTANCY SERVIC ES. HE HAS DEDUCTED THE TDS ON THE PAYMENT MADE TO THE ABOVE COMPANY. IT I S A CASE OF THE ASSESSEE THAT FOR THE PURPOSE OF BUSINESS, HE HAS E NGAGED THE SERVICES OF M/S. EMKAY GLOBAL FINANCIAL LIMITED. 92. SO FAR AS THIS ASPECT IS CONCERNED, IN OUR OPIN ION IT IS THE BUSINESS DECISION TAKEN BY THE ASSESSEE TO ENGAGE THE SERVIC ES OF A PARTICULAR COMPANY FOR THE PURPOSE OF BUSINESS. THEREFORE, TH E ASSESSING OFFICER IS NOT JUSTIFIED IN RESPECT OF THE CONSULTANCY SERVICES RE CEIVED BY THE ASSESSEE BECAUSE THE ASSESSEE HAS PAID AN AMOUNT OF RS.1,89, 00,000/- AND TDS IS ALSO BEING DEDUCTED ON THE SAID PAYMENT. NO PRUDEN T BUSINESSMAN CAN MAKE A PAYMENT TO THE THIRD PARTY WITHOUT RECEIVING THE SERVICES FROM THE PARTY. THE ONLY OBJECTION IN OUR VIEW THAT IS CONCERNED IS THE DETAILS IN RESPECT OF THE SERVICES RENDERED THAT ARE NOT FILED BEFORE THE ASS ESSING OFFICER. 93. THE ASSESSING OFFICER HAS NOT EXAMINED AS TO WH ETHER M/S. EMKAY GLOBAL FINANCIAL LIMITED HAS OFFERED THE SAME FOR T AXATION OR NOT? THIS FACT IS VERY MUCH NECESSARY TO DECIDE THIS ISSUE. THEREFOR E, WE SET ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER AND REMIT THE MATTE R BACK TO THE FILE OF THE I.T.(TP)A NO.86/CHNY/2019 :- 47 -: ASSESSING OFFICER TO EXAMINE AS TO WHETHER M/S. EMK AY GLOBAL FINANCIAL LIMITED HAS OFFERED THE AMOUNT RECEIVED FROM THE AS SESSEE FOR TAXATION OR NOT? WE ALSO DIRECT THE ASSESSEE TO SUBMIT ALL THE DETAILS OF THE SERVICES RENDERED BY M/S. EMKAY GLOBAL FINANCIAL LIMITED. IN VIEW OF THE ABOVE, THE GROUND OF APPEAL FILED B Y THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 94. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE , THE GROUND NO.2 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND ALL REMAINING G ROUNDS OF APPEAL ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 12 TH APRIL, 2021 IN CHENNAI. SD/ - ( ! . $% ) ( S. JAYARAMAN ) & /ACCOUNTANT MEMBER SD/ - ( ) (V. DURGA RAO) /JUDICIAL MEMBER /CHENNAI, 3' /DATED: 12 TH APRIL, 2021 IA, SR. PS 2 , (.45 651. /COPY TO: 1. *+ /APPELLANT 2. ()*+ /RESPONDENT 3. 7. ( )/CIT(A) 4. 7. /CIT 5. 58 (. /DR 6. 9 /GF